What Is a Bank Statement Loan? A Smart Mortgage Option for the Self-Employed
If you’re self-employed, a freelancer, or a small business owner, you may have already discovered that getting approved for a traditional mortgage can be tough—even if you make good money. The problem? Lenders often want to see W-2s and tax returns, which don’t always reflect your actual income. That’s where a Bank Statement Loan come in.
Bank statement loans offer a flexible alternative for borrowers with non-traditional income. Instead of relying on W-2s or tax returns, these loans use bank statements to verify income—making them a popular choice for independent earners.
In this post, we’ll explore what a bank statement loan is, how it works, its pros and cons, and whether it’s the right mortgage solution for you.
What Is a Bank Statement Loan?
A Bank Statement Loan is a type of non-QM (non-qualified mortgage) loan. This means it doesn’t follow the typical income verification standards set by agencies like Fannie Mae and Freddie Mac. Instead of using tax returns, a lender evaluates your bank deposits over a period of 12 to 24 months to determine your income.
This loan is ideal for borrowers who are financially stable but don’t have traditional documentation to prove income. Think: gig workers, consultants, real estate agents, small business owners, and online entrepreneurs.
How Do Bank Statement Loans Work?
Instead of looking at your adjusted gross income from tax returns, lenders review your monthly deposits shown in your personal or business bank statements.
Here’s how the process works:
- You submit 12–24 months of bank statements.
- The lender calculates your average monthly income based on deposits.
- An expense ratio may be applied (especially for business accounts) to estimate net income.
- The loan amount, interest rate, and terms are based on this income, along with your credit score and other financial factors.
Key Requirements for a Bank Statement Mortgage Loan
Although requirements vary by lender, most bank statement loan programs follow these general guidelines:
1. Self-Employment or Business Ownership
You must be self-employed or own a business, usually for at least 2 years.
2. Bank Statements
You’ll need to provide either:
- 12 or 24 months of personal bank statements, or
- Business bank statements with a CPA or accountant’s letter verifying ownership and expense structure.
3. Credit Score
Most lenders require a minimum credit score of 620–660, though the best terms go to those with scores of 700+.
4. Down Payment
Expect to make a down payment of at least 10–20%, depending on your credit profile and loan size.
5. Debt-to-Income Ratio (DTI)
DTI requirements are more flexible than traditional loans but are still considered. Some lenders allow DTI up to 50%.
Advantages of Bank Statement Loans
✅ Easier Approval for the Self-Employed
Since you don’t need to show tax returns or pay stubs, you can qualify based on real cash flow.
✅ Flexibility in Income Documentation
Using bank statements makes the process more realistic for entrepreneurs who reinvest heavily or take tax deductions.
✅ Competitive Loan Amounts
Many lenders offer jumbo loan options and allow for loan amounts up to $3 million or more.
✅ Can Be Used for Many Property Types
These loans can be used for primary residences, second homes, and even investment properties.
Drawbacks to Consider
❌ Higher Interest Rates
Because these loans are considered riskier, expect rates to be 0.5% to 1.5% higher than conventional loans.
❌ Larger Down Payment
You’ll likely need to put down more money upfront—typically 10% to 20%.
❌ Limited Lender Availability
Not all mortgage lenders offer bank statement loans, and you may need to work with a specialized non-QM lender.
Who Should Consider a Bank Statement Mortgage?
Bank statement loans are best suited for:
- Self-employed professionals
- Freelancers and gig workers
- Small business owners
- Real estate investors
- Online entrepreneurs and influencers
- Anyone with significant monthly deposits but limited taxable income
If you fall into one of these categories and your tax returns don’t reflect your real income, a bank statement loan could be your best path to homeownership or refinancing.
Tips for Getting Approved for a Bank Statement Loan
- Keep clean, organized bank records.
- Avoid large unexplained deposits.
- Use a dedicated business account if possible.
- Work with an experienced mortgage broker.
- Not every lender offers bank statement programs. A broker can match you with one who does.
- Improve your credit score.
- A higher score can help you get better terms even with non-QM loans.
- Be prepared to explain your business.
- Some lenders may ask for a letter from your CPA or proof of business ownership.
- Maintain consistent deposits.
- Fluctuating income is okay, but consistency builds lender confidence.
Alternatives to Bank Statement Loans
If a bank statement loan doesn’t seem like the right fit, consider these alternatives:
- Stated Income Loans: Even more flexible, but rare and risky.
- Asset-Based Loans: Use your savings, investments, or other assets instead of income.
- Traditional Loans With Co-Signers: Add someone with W-2 income to help qualify.
Final Thoughts: Is a Bank Statement Loan Right for You?
A bank statement loan is a powerful tool for non-traditional earners who want to buy a home, refinance, or invest in real estate—but who don’t qualify for a conventional mortgage due to tax write-offs or lack of W-2 income.
If you’re self-employed and financially solid but struggling with documentation, this flexible mortgage option could open doors for you—literally.
Be sure to work with a knowledgeable lender or mortgage broker who understands the ins and outs of bank statement loans and can guide you to the best program for your situation.
Frequently Asked Questions (FAQ)
Can I get a bank statement loan with bad credit?
Some lenders allow lower credit scores, but you’ll likely need a larger down payment and pay a higher interest rate.
Do I need both personal and business statements?
Usually, you only need one or the other depending on how your income flows. Business statements may require a CPA letter.
Can I use a bank statement loan to buy an investment property?
Yes, many lenders allow these loans for investment properties or second homes.