Bank Statement Mortgage: How to Qualify Without Tax Returns

Self-employed and can't qualify for a traditional mortgage because your tax returns show too little income? Bank statement mortgages let you qualify using your actual cash flow instead of taxable income.

If you write off business expenses, depreciate assets, or simply have complex income that doesn't show well on tax returns, a bank statement loan could be your path to homeownership—even if your CPA has worked magic to minimize your tax bill.

This comprehensive guide explains how bank statement mortgages work, who they're for, how lenders calculate income, what they cost, and how to qualify.

What Is a Bank Statement Mortgage?

A bank statement mortgage is a type of Non-QM loan that uses your bank deposits to verify income instead of W-2s, pay stubs, or tax returns.

How it works:

• Provide 12-24 months of bank statements (business or personal)
• Lender analyzes deposits to calculate average monthly income
• Qualify based on that calculated income instead of tax returns

Who offers them:

• Non-QM lenders
• Some [portfolio lenders](/blog/portfolio-lending-guide)
• Specialty mortgage companies

Who they're for:

• Self-employed borrowers
• Business owners
• Independent contractors
• Freelancers
• Gig economy workers

Why Bank Statement Loans Exist

Traditional mortgages require tax returns to verify income. But there's a problem: many self-employed borrowers legitimately write off business expenses, reducing their taxable income—and their qualifying income.

Example:

• Gross business income: $180,000
• Business write-offs: $60,000
• Net taxable income: $120,000
• Actual cash flow: More like $150,000+

Traditional lender sees: $120,000 income Bank statement lender sees: $15,000/month in deposits

The bank statement loan bridges this gap, recognizing that tax strategy and actual cash flow are different things.

Who Should Use a Bank Statement Mortgage?

Perfect Candidates:

1. Self-Employed with Substantial Write-Offs

• Business owners
• Freelancers
• Consultants
• Contractors
• Write off vehicle, home office, travel, equipment, etc.
• Tax returns show low income, bank account shows strong deposits

2. Newly Self-Employed

• Less than 2 years of tax returns
• Traditional lenders want 2 years
• Strong bank statements from year 1

3. Multiple Income Streams

• 1099 income from various sources
• Side businesses
• Investment income
• Difficult to document traditionally

4. Commission-Heavy Income

• Real estate agents
• Sales professionals
• Income varies month-to-month
• Bank statements smooth out the variation

5. Cash-Based Businesses

• Restaurants
• Retail
• Service businesses
• Strong deposits, complex tax returns

Not Ideal For:

• W-2 employees (use traditional mortgage)
• Self-employed with simple tax returns showing adequate income
• Borrowers who can't show 12+ months of strong deposits
• Those unable to afford higher rates

How Bank Statement Mortgages Work

Step 1: Gather Bank Statements

You'll need:

• 12-24 months of statements (24 months for best rates)
• Business and/or personal accounts
• All pages (don't omit anything)

Business vs. Personal:

• Business statements: Preferred by most lenders
• Personal statements: Accepted if you're sole proprietor or business income flows through personal
• Mix: Some lenders allow combination

Step 2: Lender Analyzes Deposits

Lender reviews every deposit and categorizes:

Counted as income:

• Customer payments
• Client invoices
• Business revenue
• 1099 income
• Regular deposits showing income pattern

Not counted as income:

• Transfers between your own accounts
• Loan proceeds
• One-time gifts
• Returns/refunds
• Duplicate deposits

Questionable (lender discretion):

• Large irregular deposits
• Unclear sources
• Cash deposits without documentation

Step 3: Income Calculation

Lenders use different methods:

Method 1: Gross Deposits (Most Generous)

• Add all qualifying deposits
• Divide by months
• Use 100% as income

Example:

• $240,000 total deposits over 12 months
• $240,000 ÷ 12 = $20,000/month income

Method 2: Percentage of Deposits (Most Common)

• Use 50%-75% of gross deposits
• Accounts for business expenses
• Conservative approach

Example:

• $240,000 total deposits over 12 months
• Lender uses 50% = $120,000
• $120,000 ÷ 12 = $10,000/month income

Method 3: Net [Cash Flow Analysis](/blog/cash-on-cash-return-explained)

• Deposits minus business expenses (seen in statements)
• Most conservative
• More like traditional income verification

Example:

• $240,000 deposits
• $140,000 in obvious business expenses (payroll, supplies, rent, etc.)
• Net: $100,000
• $100,000 ÷ 12 = $8,333/month income

What lenders use: Most use Method 2 (50%-75% of deposits). The exact percentage depends on:

• Type of business
• Perceived expense ratio
• Number of months provided (24 months gets higher %)
• Lender's appetite

Step 4: Qualify for Loan

Once income is calculated, standard mortgage rules apply:

• [Debt-to-income ratio](/blog/dti-ratio-explained) (DTI)
• Credit score requirements
• Down payment
• Reserves

Bank Statement Loan Requirements

Bank Statements

• Duration: 12-24 months (24 preferred)
• Type: Business or personal
• Completeness: All pages, all accounts
• Clarity: Clean, readable, official statements

Digital vs. paper: Either works, but must be official from bank

Multiple accounts: You can use multiple accounts to show full deposit picture

Credit Score

• Minimum: 640-680 (lender dependent)
• Competitive: 680-700
• Best rates: 720+

Higher than stated minimums are always better.

Down Payment

• Minimum: 10%-15%
• Standard: 20%
• Best rates: 25%-30%
• Investment property: 25%-30%

Larger down payment = better rate and easier qualification.

Debt-to-Income Ratio

• Maximum: 45%-50%
• Preferred: Under 43%

More flexible than conventional loans but not unlimited.

Reserves

• Typical: 6-12 months
• Larger loans: 12-24 months

Reserves = months of mortgage payment (PITI) in liquid assets AFTER closing.

Business Documentation

While bank statements replace tax returns, you may still need:

• Business license (if applicable)
• Proof of business existence
• CPA letter (some lenders)
• Articles of incorporation (corporations)

Less documentation than traditional loans, but not zero.

Property

• Primary residence: Yes
• Second home: Yes
• Investment property: Yes (higher down payment)
• Property types: Single-family, condo, townhome, multi-family (2-4 units)

Bank Statement Mortgage Rates

Bank statement loans are a type of [Non-QM mortgage](/blog/non-qm-mortgage-explained), so expect higher rates than conventional.

Typical rate premium: 1%-3% above conventional

Example (February 2026):

• Conventional 30-year: 6.75%
• Bank statement 30-year: 7.75%-9.75%

Factors affecting your rate:

• Credit score: 720+ gets best rates
• Down payment: 25%+ significantly better than 15%
• Reserves: More reserves = better rate
• Loan amount: Smaller loans sometimes have higher rates
• Property type: Primary residence best, investment highest
• Lender: Shop around—rates vary 1%-2% between lenders

Sample Rate Comparison

Scenario 1: Strong borrower

• 740 credit score
• 25% down
• 12 months reserves
• Primary residence
• Rate: 7.50%-8.25%

Scenario 2: Moderate borrower

• 680 credit score
• 20% down
• 6 months reserves
• Primary residence
• Rate: 8.25%-9.25%

Scenario 3: Investor

• 700 credit score
• 30% down
• 12 months reserves
• Investment property
• Rate: 8.50%-9.75%

Bank Statement Loan Costs

Interest Rates

As noted above, expect 1%-3% premium.

Cost over 30 years: On a $400,000 loan:

• 6.75% conventional: $2,594/month, $933,840 total interest
• 8.75% bank statement: $3,149/month, $1,133,640 total interest
• Difference: $555/month, $199,800 over 30 years

Strategy: Refinance to conventional when your tax returns support it.

Origination Fees

• Typical: 1%-3% of loan amount
• On $400,000 loan: $4,000-$12,000

Higher than conventional (0.5%-1%).

Closing Costs

• Total: 3%-6% of loan amount
• On $400,000 loan: $12,000-$24,000

Includes origination, appraisal, title, etc.

Prepayment Penalties

Common on bank statement loans:

• Typically 1-5 years
• Penalty: 2%-5% of loan balance if paid off early
• Often declines over time (3% year 1, 2% year 2, 1% year 3)

Important: Factor this into your strategy. If you plan to refinance in 2 years, know the penalty cost.

How to Prepare for a Bank Statement Loan

1. Clean Up Your Bank Statements

6-12 months before applying:

• Deposit consistently - Show regular income pattern
• Avoid cash deposits - Hard to verify source
• Use business account for business income - Cleaner picture
• Minimize transfers between accounts - Creates confusion
• Note large/unusual deposits - Be ready to explain

Don't: Try to fabricate income. Lenders scrutinize carefully, and fraud is illegal.

2. Improve Your Credit Score

• Pay down credit cards
• Don't open new accounts
• Dispute errors on credit report
• Every 20 points matters - Can mean 0.25%-0.50% better rate

3. Save Larger Down Payment

• 20% is minimum for good rates
• 25%-30% gets you significantly better pricing
• Each 5% more down = ~0.25% better rate

4. Build Reserves

• 12 months is ideal
• Includes savings, checking, investment accounts
• Retirement accounts count at 70% value
• More reserves = better rate and easier approval

5. Organize Documentation

Create a folder with:

• 12-24 months bank statements (business and personal)
• Business license
• Articles of incorporation (if applicable)
• Credit report (pull your own first)
• List of assets and account balances
• Explanation letters for any unusual deposits

6. Calculate Your Expected Qualifying Income

• Add up your deposits for 12-24 months
• Assume lender will use 50%-75%
• Divide by number of months
• This is your estimated qualifying income

Example:

• $300,000 in deposits over 24 months
• Lender uses 60% = $180,000
• $180,000 ÷ 24 = $7,500/month
• Can qualify for ~$225,000 loan (rough, depends on DTI)

7. Shop Lenders Before Applying

• Not all lenders offer bank statement loans
• Those that do have different programs and rates
• Get quotes from 3-5 lenders

Finding a Bank Statement Lender

Who Offers Bank Statement Loans:

Non-QM Specialists:

• Angel Oak Mortgage Solutions
• Athas Capital
• Citadel Servicing
• Deephaven Mortgage
• LoanStream
• Carrington Mortgage

Mortgage Brokers:

• Have access to multiple Non-QM lenders
• Can shop for best rate
• Good option if you're not sure which lender to use

Portfolio Lenders:

• Some banks and credit unions keep loans in portfolio
• May offer bank statement options
• Terms vary widely

Online Lenders:

• Some online platforms offer Non-QM products
• Convenient application process

Recommendation: Work with a mortgage broker experienced in Non-QM/bank statement loans. They'll know which lenders have the best programs for your situation.

Bank Statement Loan vs. Traditional Mortgage

Common Bank Statement Loan Mistakes

1. Using statements that show irregular income - Consistent deposits matter
2. Not providing enough months - 24 months is better than 12
3. Too many unclear/large deposits - Raises red flags
4. Mixing personal and business income sloppily - Use business account when possible
5. Not shopping lenders - Rates vary 1%-2% between lenders
6. Ignoring prepayment penalties - Factor into refinance strategy
7. Applying with low credit score - Improve credit first, save thousands
8. Insufficient down payment - 15% vs. 25% can mean 0.5%+ rate difference

Alternatives to Bank Statement Loans

Before going this route, consider:

1. Traditional Mortgage with Better Tax Returns

• Work with CPA to show more income on next tax return
• Wait 1-2 years
• File returns that support mortgage qualification
• Refinance to conventional later at lower rate

Trade-off: Higher taxes now, lower mortgage rate forever

2. [Debt Service Coverage Ratio](/blog/best-dscr-lenders-2026) (DSCR) Loan

• For investment properties only
• No personal income verification at all
• Qualify based on rental income
• Good for investors

3. Asset-Based Mortgage

• Qualify based on assets, not income
• Good if you have significant investments/savings
• Different calculation than bank statements

4. Add a Co-Borrower

• Partner, spouse, family member with W-2 income
• Qualify using their income
• Get conventional rates
• If you have willing co-borrower

5. Wait and Build Business

• Operate business 2+ years
• File clean tax returns showing adequate income
• Qualify conventionally
• Best long-term option if you can wait

Refinancing from Bank Statement to Conventional

The ideal strategy:

1. Get bank statement loan now - Buy the house
2. Operate business 2+ years - Build tax return history
3. File tax returns showing adequate income - Work with CPA
4. Refinance to conventional - Get 1%-3% lower rate
5. Save thousands long-term

Considerations:

• Prepayment penalty - Factor into timing
• Refinance costs - 2%-5% of loan amount
• Rate environment - Refinance when rates are favorable
• Break-even analysis - When does lower rate offset refi costs?

Example:

• Year 1: Bank statement loan at 8.5%
• Year 3: Refinance to conventional at 6.5%
• Save $350/month = $4,200/year
• Refinance costs $10,000
• Break-even: 2.4 years
• Worth it if you're keeping the home long-term

Is a Bank Statement Mortgage Right for You?

Get a bank statement loan if:

• You're self-employed with strong cash flow
• Tax returns don't show enough income to qualify conventionally
• You have consistent deposits in bank accounts (12-24 months)
• You can afford 20%+ down payment
• You have 6-12 months reserves
• Your credit score is 680+
• You understand and can afford the higher rate

Skip it if:

• You can qualify for conventional or FHA with current documentation
• Your bank statements don't show consistent income
• You can't afford the higher rate long-term
• You have under 10% down payment
• Your credit score is below 640

Consider waiting if:

• You're 6-12 months away from having 2 years of tax returns
• Your business is very new (under 12 months)
• You can improve credit score significantly in 3-6 months
• You're close to saving 25% down (vs. 15% now)

Bottom Line

Bank statement mortgages are a powerful tool for self-employed borrowers who have strong cash flow but complex tax returns. They recognize the reality that business owners legitimately reduce taxable income through write-offs, depreciation, and tax strategy—and that tax returns don't always reflect true earning power.

The trade-off is clear:

• Benefit: Qualify using actual cash flow, not tax returns
• Cost: 1%-3% higher interest rate, higher fees, prepayment penalties

Keys to success:

1. Show 24 months of clean, consistent deposits - Better rates, easier approval
2. Maximize down payment - 25%+ sweet spot for pricing
3. Improve credit score - 720+ makes a big difference
4. Shop multiple lenders - Rates vary dramatically
5. Have a refinance strategy - Plan to move to conventional when possible

For many self-employed borrowers, a bank statement loan is the bridge to homeownership—a temporary higher-rate solution that allows you to buy now and refinance later when your documentation supports conventional financing.

Used strategically, it's not a permanent burden—it's a tool to get you into the home while you build the paper trail for better financing down the road.

Just make sure you can afford the payment, understand the full costs including prepayment penalties, and have a realistic plan to optimize your mortgage over time. Do that, and a bank statement loan can be exactly what you need.

Related Articles

• [Using a HELOC for an [Investment Property Down Payment](/blog/investment-property-down-payment): Smart Strategy or Risky Move?](/blog/heloc-for-investment-property-down-payment)
• Investment Property Down Payment: Your Real Options in 2026
• [Best Investment Property Lenders in 2026 - Rental & [Multifamily Loans](/blog/best-investment-property-lenders-2026)](/blog/best-investment-property-lenders-2026)