Your business deposited $444,000 last year. Your tax return says you made $118,000. A lender using the tax return sees a borrower who can afford about a $510,000 home. You know the business supports more than that. The bank statement loan income calculation is how a lender gets from your deposits to a number it can lend on, and it is simple enough to run yourself before you apply.
It is not total deposits divided by twelve. The lender removes deposits that are not revenue, subtracts an allowance for business expenses, and counts only your share of the company. Each of those three steps can move your buying power by six figures.
Bill Lewis at Choice One Mortgage has spent more than 30 years qualifying self-employed borrowers in the Coachella Valley, Ventura County and the South Bay. In this guide, we'll cover the formula, which deposits count, how the expense factor works and how to lower it, and what the same business qualifies for on tax returns and on bank statements.
Quick answer: A lender adds up 12 or 24 months of deposits, removes transfers, loan proceeds, refunds and one-time items, and averages what is left. On a business account it then subtracts an expense factor, usually 50%, and multiplies by your ownership percentage. $32,000 a month in eligible business deposits becomes $16,000 a month of qualifying income at 50%, or $20,800 if your tax preparer documents that expenses run 35%.
The Formula Lenders Use
Every bank statement loan runs the same four steps:
Eligible deposits, divided by the number of months, minus the expense factor, times your ownership percentage, equals monthly qualifying income.
That figure takes the place of the income a conventional lender would pull from your tax returns. Everything else is underwritten the usual way: credit, debts, down payment, reserves and the appraisal. These are non-QM loans made by private lenders, so the terms below are the typical ones we see across the lenders we work with, and an individual program can differ.
You need to be self-employed, normally for two years, and the lender will confirm it with a business license, a letter from your tax preparer or a Secretary of State filing. Our self-employed mortgage page lists the programs that accept one year when you worked in the same field before.
12 Months or 24 Months of Statements
Most programs let you choose. The lender averages whichever period you submit, so the choice is about which average flatters the business honestly.
| 12 Months | 24 Months | |
|---|---|---|
| Best when | Revenue grew in the last year | Last year had a slow stretch and the year before was stronger |
| How seasonal income is treated | One full cycle of busy and slow months | Two full cycles, which smooths an unusual season |
| What the underwriter watches | Whether the last three months are in line with the average | Whether the second year is lower than the first |
A desert pool contractor whose deposits peak from March through June should never be measured on six months. Twelve is the minimum for that reason. If deposits are falling, a longer average does not hide it: the underwriter compares recent months with the average and can use the lower figure.
Personal, Business or Co-Mingled: The Account Changes the Math
The account you submit decides whether an expense factor applies at all.
| Account Type | What It Shows | Expense Factor | What Else the Lender Asks For |
|---|---|---|---|
| Business account | Gross receipts from customers, before expenses | Yes. 50% unless you document a lower one | Proof of ownership percentage |
| Personal account | What the business already paid you, after expenses | None. Eligible deposits count at 100% | A few months of business statements to show the transfers come from a separate business account |
| Co-mingled account | Business receipts and personal spending in one account | Yes. Treated like a business account | An explanation of which deposits are business revenue |
If you pay yourself a steady draw from the business into a personal account, personal statements are the cleanest file: there is no expense factor to argue about. If you leave money in the business and pay yourself irregularly, business statements usually produce the higher number.
Which Deposits Count and Which Are Removed
The underwriter reads every deposit on every page. The test is whether the money is revenue from the business that will keep coming.
| Deposit | Counted? | Why |
|---|---|---|
| Customer and client payments, card processor and Zelle receipts | Yes | This is the revenue the loan is based on. |
| Transfers from another account you own | No | The money already existed. It moved, it was not earned. |
| Business loan, line of credit or equipment financing proceeds | No | Borrowed funds are not sales. |
| Refunds, returned payments and chargebacks | No | They reverse an earlier transaction. |
| Tax refunds, insurance claims, sale of a vehicle or equipment | No | One-time money, not recurring revenue. |
| Cash deposits | Only if they fit the business | Normal for a restaurant or salon. For a consultant, expect to show invoices. |
| One deposit far larger than the usual pattern | Only with documentation | Bring the contract or invoice. Without it the deposit is removed. |
The Expense Factor: 50% Is the Default, Not the Only Answer
A business account shows gross receipts, and nobody keeps 100% of gross. Instead of auditing your expenses, the lender applies a flat expense factor. The standard is 50%: half of eligible deposits is treated as the cost of running the business, and the other half is your income.
Fifty percent is fair for a contractor with a crew and materials. It is harsh for a consultant, an insurance agent or a designer whose main expenses are a laptop and a phone. There are two ways to replace it:
- A letter from your CPA, enrolled agent or tax preparer stating the business's actual expense ratio. Lenders that accept one set a floor on how low it can go, and the preparer generally must be the one who did your most recent return.
- A profit and loss statement covering the same months as the bank statements. The lender checks that the revenue on the P&L lines up with the deposits, then uses the P&L's net income.
Here is what the factor does to a Manhattan Beach marketing consultant who deposits $25,000 a month into her business account:
| Expense Factor | How It Is Supported | Monthly Qualifying Income |
|---|---|---|
| 50% | Lender's default, no extra paperwork | $12,500 |
| 30% | Tax preparer letter | $17,500 |
| 20% | Tax preparer letter | $20,000 |
Figures in this article are examples only. Rates are examples, change daily and depend on each borrower's situation. Property tax is estimated at 1.25% of the price and insurance at $175 a month.
One caution. Your preparer is signing a statement about your business, and it has to agree with the return that same preparer filed. If your Schedule C shows expenses at 70% of receipts, no one is going to sign a letter saying 30%.
How Ownership Percentage Changes the Number
The lender multiplies the result by the share of the business you own. A sole owner counts 100%. If you and a partner each own half of a company that produces $16,000 a month after the expense factor, your income is $8,000. A married couple who own the business together and are both on the loan count the full amount. Most programs require at least 25% ownership, which is the same line Fannie Mae's self-employed income rules use to define a self-employed borrower.
Worked Example: An Indio HVAC Contractor
Carlos owns 100% of an HVAC company in Indio. He has been dividing his $444,000 of deposits by 12 and telling his agent he makes $37,000 a month. Here is how the underwriter reads the same 12 business statements.
| Step | Amount |
|---|---|
| Total deposits, 12 months | $444,000 |
| Less transfers from his personal savings | - $18,000 |
| Less equipment loan proceeds for a new service van | - $30,000 |
| Less supplier refunds and a returned customer payment | - $6,000 |
| Less an insurance claim check | - $6,000 |
| Eligible deposits | $384,000 |
| Monthly average (divided by 12) | $32,000 |
| Less 50% expense factor | - $16,000 |
| Ownership | 100% |
| Monthly qualifying income | $16,000 |
Tax Returns vs. Bank Statements for the Same Business
Now run Carlos through a conventional loan. Fannie Mae has the lender analyze two years of personal and business returns on its cash flow form, Form 1084, add back paper expenses such as depreciation, and average the result.
| 2024 Return | 2025 Return | |
|---|---|---|
| Schedule C net profit | $98,000 | $118,000 |
| Depreciation added back | $10,000 | $14,000 |
| Income for the year | $108,000 | $132,000 |
| Two-year monthly average | $10,000 |
Same business, same year, two incomes: $10,000 a month on tax returns and $16,000 on bank statements. The gap is the truck, the home office, the retirement contribution and every other legitimate deduction that lowers taxable profit below half of receipts. Here is what each income supports, with 20% down and $1,200 a month in other debts.
| Tax Returns (Conventional) | Bank Statements | |
|---|---|---|
| Monthly qualifying income | $10,000 | $16,000 |
| Example 30-year fixed rate | 6.5% | 7.25% |
| Total debts allowed at 45% of income | $4,500 | $7,200 |
| Less car and credit card payments | - $1,200 | - $1,200 |
| Room for the house payment | $3,300 | $6,000 |
| Purchase price that fits | $510,000 | $895,000 |
| Loan amount with 20% down | $408,000 | $716,000 |
| Principal and interest | $2,578.84 | $4,884.38 |
| Property tax and insurance | $706.25 | $1,107.29 |
| Total monthly housing payment | $3,285.09 | $5,991.67 |
Both columns use a 45% debt-to-income ratio so the comparison is even.
The bank statement loan is not free money. On the same $408,000 loan, 7.25% costs $2,783.28 a month in principal and interest against $2,578.84 at 6.5%, which is $204.44 more. If the home you want fits inside your tax return income, take the conventional loan. Bank statements earn their higher rate when the home you can afford is out of reach on paper. Test your own target price with our income needed calculator.
What Can Go Wrong
- Declining deposits. If the last three or four months run well below the average, the underwriter will ask why and can qualify you on the lower recent figure.
- Overdrafts and returned items. Programs limit how many NSF charges they accept in the last 12 months. A pattern of them reads as a business that is short of cash, whatever the deposits say.
- A P&L that does not match the statements. If your profit and loss shows $420,000 in revenue and the deposits total $384,000, the lender uses the deposits or declines the P&L.
- Counting the same dollar twice. Money that lands in the business account and is then transferred to your personal account is one deposit, not two. Submit one account type and let the other support it.
- Moving money during the loan. A $40,000 transfer in the month before closing creates a new large deposit to document. Leave the accounts alone from application to funding.
- Down payment sitting in the business account. You can usually use it, but the lender will want to see that taking it out does not starve the business. Ask before you move it.
If the deposits will not carry the loan but your savings are substantial, an asset depletion loan qualifies you on account balances instead. Homeowners who want equity without touching a low first mortgage can use the same deposit math on a no tax return HELOC.
A Step-by-Step Plan Before You Apply
- Download 12 months of statements for the account your revenue lands in. Use the bank's PDF statements, every page, including blank ones.
- Highlight what is not revenue. Mark each transfer, loan advance, refund and one-time deposit, and total them.
- Run the formula. Eligible deposits divided by 12, times 50% for a business or co-mingled account, times your ownership percentage.
- Ask your tax preparer what your real expense ratio is. If it is well under 50% and your return agrees, a letter is worth requesting.
- Compare with your tax return income. Add depreciation back to net profit for each of the last two years and average them.
- Send us both sets of numbers. We calculate income the way the underwriter will, price both loans, and show you the price range and payment for each.
- Get pre-approved before you shop, then keep sending each new monthly statement so the approval stays current.
The full list of what to gather is on our mortgage document checklist. If you are working with a Realtor, our playbook for getting self-employed buyers offer-ready covers the pre-approval letter and timeline from the agent's side, and our guide to non-QM loans explains where bank statement loans sit among the other options.
The Bottom Line
A bank statement loan does not take your word for your income, and it does not count every deposit. It counts business revenue, takes off an expense allowance, and credits you with your share. Run those steps on your own statements and you will know your number within a few hundred dollars before a lender ever sees the file.
Then compare it with what your tax returns support, because the cheaper loan wins whenever it is big enough. We run both for you at no cost. Start with our bank statement loans page, or read how to get approved for a mortgage for the rest of what underwriting looks at.
Want to know your bank statement income before you shop?
Call Bill Lewis at (310) 614-5920. Send 12 months of statements and we will show you the calculation line by line, next to your tax return number.
Get a Free ConsultationFrequently Asked Questions About Bank Statement Income
How many months of bank statements do I need for a mortgage?
Bank statement programs use 12 or 24 consecutive months, and 12 is the most common. The lender needs every page of every statement for the account you qualify on.
Do lenders count all deposits as income?
No. Transfers between your own accounts, loan proceeds, refunds, tax refunds, insurance checks and other one-time deposits are removed first. On a business account, the expense factor then cuts the remaining total, usually in half.
What is the expense factor on a bank statement loan?
It is the percentage of business deposits the lender treats as operating costs, and the default is 50%. A letter from your CPA or tax preparer, or a profit and loss statement that matches your deposits, can replace it with your actual ratio down to the lender's floor. Personal account statements carry no expense factor because the money has already passed through the business.
Is it better to use personal or business bank statements?
Use the account that shows your income most clearly. Personal statements work well when the business pays you a regular draw, since those deposits count at 100%. Business statements usually work better when you leave profit in the company, even after the expense factor.
Do I have to give the lender my tax returns?
No, a bank statement loan calculates income from deposits and does not use your tax returns. You will still document that the business exists and how long you have owned it, and you will provide the usual credit, asset and property documents.
I own 50% of my company. How much of the deposits count?
Half. The lender calculates the business's income from its statements, then multiplies by your ownership percentage, which you document with an operating agreement, a K-1 or a letter from your tax preparer. If your co-owner is your spouse and you are both on the loan, the full amount counts.
Are bank statement loan rates higher than conventional rates?
Yes. The example in this article uses a gap of three quarters of a point, which was $204 a month on a $408,000 loan, and the real gap depends on your credit score and down payment. Many owners take the loan to buy now and refinance into a conventional loan once two years of returns support it, though no one can promise what rates will be then.
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About the Author: Bill Lewis
Mortgage Loan Originator, Choice One Mortgage · NMLS #284797
Bill Lewis has spent more than 30 years helping Southern California homebuyers and the Realtors who serve them structure financing that fits their real situation. Based in La Quinta, Choice One Mortgage serves buyers throughout the Coachella Valley, Ventura County, and the South Bay. Learn more about our team or call (310) 614-5920.
Figures and rates in this article are examples only. Bank statement loans are non-QM loans made by private lenders, and expense factors, ownership requirements, credit scores and down payments vary by lender and program. This article is general information, not tax or accounting advice; talk with your tax professional before changing how you report income. This is not a commitment to lend. All loans are subject to credit approval, underwriting guidelines, and property valuation. Equal Housing Opportunity. COMC, Inc. dba Choice One Mortgage Company. Licensed by the CA DRE #01238593. NMLS #233784.