Self-employed? Your tax return isn't your income.
Conventional underwriting uses what's left after write-offs. A bank statement loan uses what actually hits the account. For many Texas business owners that difference is a hundred thousand dollars of buying power.
| Bank statement loan | Conventional loan | |
|---|---|---|
| Qualifying income | 12 or 24 months of business or personal deposits, less an expense factor | Net income after write-offs on two years of tax returns |
| Tax returns required | No | Yes, two years, personal and business |
| Write-offs | Do not reduce qualifying income | Directly reduce qualifying income |
| Self-employment history | Typically two years, some programs allow one | Typically two years |
| Down payment | Typically 10–20% | 3–20% |
| Pricing | Roughly 1.0–2.0% above conventional | The market benchmark |
| Mortgage insurance | None on most programs | Required under 20% down |
| Loan amounts | Often into the jumbo range without agency limits | Conforming limits unless you go jumbo |
| Occupancy | Primary, second home or investment | Primary, second home or investment |
Guidelines and pricing vary by lender and change over time. This is an educational comparison, not a commitment to lend.
Same business. Two very different qualifying incomes.
- Gross revenue
- $480,000
- Deductions and depreciation
- –$372,000
- Qualifying income
- $9,000 / mo
- 24-month qualifying deposits
- $840,000
- Expense factor (50%)
- –$420,000
- Qualifying income
- $17,500 / mo
Illustrative example only. Your deposit total, expense factor and program guidelines determine your actual qualifying income.
- Your Schedule C or K-1 net income is far below what your business actually deposits.
- You want to keep taking write-offs rather than file differently for two years.
- You need a loan amount your tax-return income will not support.
- You had one weak tax year that drags a two-year average down.
- You have 10–20% down and reserves in the bank.
- Your returns already document enough net income for the payment.
- You are a W-2 borrower with a side business you can simply exclude.
- You want the lowest available rate and no Non-QM premium.
- You qualify for a down payment assistance or first-time buyer program.
- Your income is stable, documented, and rising across both years.
Is a bank statement loan better than a conventional loan for self-employed borrowers?
It is better when aggressive write-offs make your tax-return income too low to qualify for the house you can actually afford. If your returns already show enough net income, conventional is cheaper and you should take it.
How much more does a bank statement loan cost?
Pricing generally runs about one to two percent above a comparable conventional rate, and down payment requirements are usually higher. There is typically no monthly mortgage insurance, which recovers part of the difference.
How is income calculated on a bank statement loan?
Most programs total your deposits over 12 or 24 months, remove transfers and non-business deposits, apply an expense factor (commonly 50% but often lower with a CPA letter or a P&L), and divide by the number of months. Business and personal statement programs calculate differently.
Can I switch to a conventional loan later?
Yes. Many self-employed borrowers use a bank statement loan to buy now and refinance into conventional after a year or two of returns that show stronger net income. Coordinate that plan with your CPA before filing.
Do I need a bigger down payment?
Usually. Ten percent down exists on some programs, but pricing and approval odds improve meaningfully at 15 to 20 percent, and reserves matter more than they do on conventional.
Does 12 or 24 months of statements price better?
Twenty-four months generally prices better because it gives the underwriter a longer income picture. Twelve months exists for borrowers whose older statements are weaker or whose business is newer.
If your income isn't a W-2
Most of what Mike does sits outside agency guidelines. If your file is self-employed, 1099, asset-heavy, or investor-owned, start here:
Qualify a rental on its own rent instead of your tax returns.
Use 12–24 months of business deposits as qualifying income.
Six line-by-line ratio calculations across Texas metros.
Deposit math, expense factors, and 12 vs 24 month options.
Asset depletion, 1099-only, P&L, ITIN and foreign national paths.
Estimate your ratio from rent and total housing expense.
Send me 12 months of statements. I'll tell you what you qualify for.
A boutique client experience, backed by a national lending platform.
- · Licensed across Texas
- · Broad portfolio of loan solutions
- · Experienced lending & operations team
- · Professional service from application through closing