If you are self-employed, your tax returns can show less income than you earn, because they show it after every deduction. A bank statement loan is a mortgage that looks at your deposits instead. It is a non-QM loan, which means it is not sold to Fannie Mae or Freddie Mac, so each lender sets its own rules. But most of them do the same math.
The math most lenders use
- Take 12 or 24 months of statements. Personal or business accounts, depending on the lender. Twelve months suits a business that has grown, and 24 months smooths out a seasonal one.
- Total the eligible deposits. Business income only: the lender leaves out transfers between your own accounts, refunds, loan money and other deposits that are not earnings.
- Apply an expense factor to business account deposits, because some of that money pays the business's costs. Many lenders start at 50%. A letter from your CPA or enrolled agent with your real expense ratio can change it.
- Multiply by your share of the business, if you do not own all of it.
- Divide by the number of months.
For example, $180,000 of eligible deposits over 12 months, in a business account you own outright, with a 50% expense factor:
| Step | Figure |
|---|---|
| Eligible deposits | $180,000 |
| After a 50% expense factor | $90,000 |
| Your share, 100% | $90,000 |
| Monthly income (รท 12) | $7,500 |
Your lender's figures can differ: the expense factor, the months it counts, and how it treats a personal account that also takes business money. Ask your loan officer for theirs before you work out your own.
What an underwriter looks at as well
- The trend. Deposits that fall month after month can lower the figure, or stop the loan.
- Large deposits that are not business income. A one-off deposit needs a source. Large deposits and the letter of explanation shows how to find them first.
- NSF and overdraft fees. A few are common. Many in a row are a warning sign.
Work out your own figure first
Send the lender the PDFs your bank gives you, exactly as they are. The spreadsheet is for you: with it, you see the figure the underwriter will see, while there is still time to explain a deposit or to wait a month.
- Download 12 or 24 months of statements from your online banking, as PDFs.
- Drop the first PDF in on our home page, and we show you its first page converted before you sign up. Sign up with your email address to download it. You do not need a card, and the free trial converts up to 5 pages of a statement, 15 pages in all.
- For the rest, take a plan. Each page of PDF uses one page of credit, so 24 statements of four pages is about 100 pages. Our plans say how many pages each one gives.
- Paste the rows of every statement into one sheet in Excel, under one header row.
Some US statements list deposits, withdrawals and checks in separate sections, with no running balance. We cannot convert those yet, and you see that on the first page, before you sign up.
Then add a Category column, and mark each deposit: Business, Transfer, Refund, Loan or Other. Total the Business rows for each month with a pivot table: select the data, then Insert > PivotTable, with the month in Rows, Category in Columns and the money in Values. The months in a row show the trend, and their total is the start of the math above.
What ACH, PPD and CCD mean helps you tell a client's payment from a transfer.
Check the conversion
Your Excel download has a Ledger column that checks each balance against
the row before it. Filter it for break, and compare those rows with the PDF.
A deposit we misread changes your income figure, so check before you trust
the total.
For loan officers and brokers
A borrower's 24 months is often 24 PDFs, from more than one account. On the Standard and Plus plans you can upload several statements at once. Each one comes back with its balances checked, so you can see a statement that does not add up before the underwriter does.
What this does not do
A spreadsheet does not tell you what a lender will approve. Lenders set their own rules for bank statement loans, and they change. What it gives you is the lender's view of your deposits, before you apply.