Self-employed business owners frequently claim legitimate tax deductions that reduce adjusted gross income (AGI) on IRS Form 1040, disqualifying them from conventional agency mortgages. Bank statement loans solve this bottleneck.
1. Bank Statement Underwriting Mechanics
Qualifying Cash Flow Calculations
Underwriters average 12 to 24 consecutive months of business or personal bank statements. For business accounts, a standard 50% expense ratio (or custom CPA letter) is applied against total gross deposits to establish verifiable monthly qualifying income.
- Eligible Borrowers: Sole proprietors, LLC partners, S-Corp shareholders, and 1099 independent contractors with at least 2 years of verifiable business history.
- Loan-to-Value (LTV): Up to 80% LTV for rate-and-term and 75% LTV for cash-out refinances.