Answers · Self-employed
How does a bank statement loan calculate my income?
The lender adds up your deposits over 12 or 24 months, removes anything that is not business income, applies an expense factor for the cost of running the business, and divides by the number of months. What is left is your qualifying income. The expense factor is the part that moves the number most.
Written by Andrew Malm, Senior Loan Originator, NMLS# 2663426. Last reviewed .
Start with deposits. Transfers between your own accounts do not count. Neither do loans, refunds, or a one-time gift. The underwriter is looking for money your business earned, month after month.
Then comes the expense factor. A business with a storefront, staff and inventory keeps less of each dollar than a consultant working from home. Lenders use a standard factor by type of business, and many will accept a letter from your CPA or tax preparer stating your real expenses if they are lower.
Personal statements and business statements are treated differently. With business statements, the expense factor applies. With personal statements, the lender usually wants to see the business account too, to confirm where the money came from. Mixing the two in one account is the most common thing that slows these files down.
Consistency matters as much as the total. Twelve steady months read better than three huge ones and nine thin ones. If your income is seasonal, say so early. It can be explained, and it is better explained by us than discovered by the underwriter.
What I'd do
- Run your business income through one account if you can, starting now.
- Ask your CPA or tax preparer whether they will write an expense letter.
- Mark the deposits that are not income before you send statements.
- Let me run the number both ways, 12 months and 24, before you choose.
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