Why tax returns hurt self-employed buyers
Smart business owners write off everything they legally can. That is great at tax time but it shrinks the income a regular lender is allowed to use. I talk to self-employed buyers every week who earn plenty but get turned down because of what shows on their returns.
How a bank statement loan works
Instead of tax returns, the lender reviews your bank statements, typically 12 or 24 months of personal or business statements, and calculates income from your deposits. Business statements usually apply an expense factor, and some lenders let you use a CPA prepared profit and loss statement.
- No tax returns required for income
- Personal or business statements depending on what makes your income look best
- Primary homes, second homes and investment property
- Options for 1099 earners using 1099s instead of statements with some lenders
What you will need
- Generally two years of self-employment history
- Your bank statements for the review period
- Proof your business exists, like a license, CPA letter or website
- Down payment and reserves
Pricing compared to conventional
Bank statement loans are non-QM loans, so pricing is usually higher than a conventional loan. For many business owners it is still the right move because it gets them a home now instead of waiting years to show higher taxable income. Down the road, if your returns support it, we can refinance into a conventional loan.
Common questions
Should I use personal or business bank statements?
It depends on how your money moves. If you pay yourself from the business into a personal account consistently, personal statements can work well. If deposits mostly stay in the business, business statements usually make more sense. I will run it both ways.
I just started my business. Can I still qualify?
Most lenders want two years of self-employment. Some will consider less if you were in the same line of work before going out on your own.
Can I use a bank statement loan to buy a rental?
Yes. Bank statement loans can be used for investment property. For rentals, a DSCR loan is also worth comparing since it does not look at your income at all.
All loans subject to credit approval, property eligibility, and underwriting guidelines. Not all borrowers will qualify. Program terms and availability can change without notice. This is not a commitment to lend.