Self-Employed & Bank Statement Loans

A bank statement loan (also called a self-employed mortgage or 1099 loan) is a type of mortgage designed specifically for self-employed borrowers, business owners, entrepreneurs, and independent contractors who have difficulty qualifying for traditional mortgages due to tax write-offs and business deductions.

Instead of requiring W-2s and tax returns to verify income, bank statement loans allow borrowers to qualify using 12-24 months of personal or business bank statements. Lenders analyze your deposits and cash flow to calculate your qualifying income, making it possible to secure financing even if your tax returns show lower income due to legitimate business expenses.

This alternative documentation approach recognizes that many successful business owners and self-employed professionals have strong cash flow and the ability to repay a mortgage, even though their taxable income appears lower on paper. Bank statement loans bridge the gap between traditional lending requirements and the financial reality of self-employment.

How Bank Statement Loans Work

The process is straightforward: instead of providing tax returns, you submit 12-24 months of bank statements (personal, business, or both). The lender reviews your deposits and calculates your average monthly income. Most programs use 50-100% of deposits as qualifying income, depending on whether you use personal or business accounts.

For example, if your business bank statements show average monthly deposits of $20,000, the lender might use 50% ($10,000) as your qualifying income to account for business expenses. If you use personal bank statements showing $15,000 in monthly deposits, the lender might use 100% ($15,000) as qualifying income since personal expenses are already accounted for.

Once your income is calculated, the lender evaluates your debt-to-income ratio, credit score, down payment, and property details just like a traditional mortgage. The key difference is the income verification method, which is designed to reflect your actual cash flow rather than taxable income.

Why Self-Employed Borrowers Need Bank Statement Loans

Traditional mortgage underwriting relies heavily on W-2s and tax returns to verify income. For W-2 employees, this works perfectly—their gross income is clearly documented. But for self-employed borrowers, tax returns often tell a misleading story.

Business owners legitimately write off expenses like home office costs, vehicle expenses, travel, equipment, depreciation, and more. These deductions reduce taxable income (and tax liability), but they also make it appear that the borrower earns less than they actually do. A business owner with $200,000 in revenue might show only $80,000 in taxable income after deductions—even though their actual cash flow is much higher.

Bank statement loans solve this problem by looking at actual deposits and cash flow rather than taxable income. This allows self-employed borrowers to qualify for the mortgage they can truly afford based on their real financial situation, not just what appears on their tax returns.

Bank statement loan rates are typically 0.5-1.5% higher than conventional mortgage rates due to the alternative documentation and perceived higher risk. However, rates remain competitive compared to other non-QM options and are significantly lower than hard money or private lending.

Current bank statement loan rates generally range from 6.5-8.5% depending on your credit score, down payment, loan amount, property type, and overall financial profile. Borrowers with excellent credit (740+), larger down payments (25%+), and strong cash flow qualify for the best rates.

Typical Fees & Closing Costs

• Origination Fee: 1-2% of loan amount (may be negotiable)
• Appraisal: $500-$800 depending on property type and location
• Credit Report: $50-$100 for tri-merge credit report
• Title & Escrow: $1,500-$3,000 depending on loan amount and state
• Prepaid Items: Property taxes, homeowners insurance, and interest

Total closing costs typically range from 2-5% of the loan amount. While slightly higher than conventional loans, bank statement loans offer tremendous value for self-employed borrowers who cannot qualify through traditional channels.