How Business Owners Can Qualify for a Mortgage with Bank Statement Loans

If you’re a business owner, you know how rewarding running your own company can be. But when it comes to qualifying for a mortgage, it’s no secret that things can get tricky. Traditional lenders often rely heavily on W-2s, tax returns, and pay stubs to verify income—none of which are typically straightforward for entrepreneurs. In fact, many business owners struggle to qualify for a mortgage because their income appears irregular or lower on paper due to tax deductions. Fortunately, there’s a solution designed with you in mind: bank statement loans.

This guide will walk you through what bank statement loans are, how they work, and why they could be the key to unlocking homeownership for you.

What Are Bank Statement Loans?

A bank statement loan is a type of mortgage designed for individuals who don’t have traditional proof of income, like W-2s or pay stubs. Instead, these loans rely on your bank statements to verify your income. By reviewing your deposits over a set period—typically 12 or 24 months—lenders can assess your financial health and determine your eligibility for a loan.

This option is particularly useful for self-employed individuals, independent contractors, freelancers, and anyone else whose income might fluctuate from month to month.

How Do Bank Statement Loans Work?

Here’s a step-by-step breakdown of the process:

1. Provide Your Bank Statements: Instead of tax returns, you’ll submit your personal and/or business bank statements for the last 12 or 24 months. Some lenders may allow you to choose which accounts to provide.

2. Income Calculation: Lenders will analyze your deposits to calculate your average monthly income. Depending on whether you use personal or business bank statements, they may factor in different percentages to account for business expenses. For example, if you’re submitting business bank statements, the lender might use 50% to 70% of your deposits as your income.

3. Other Documentation: While bank statement loans don’t require tax returns, lenders may still ask for additional documents, such as a profit and loss statement, proof of business ownership, or a CPA letter verifying your income.

4. Underwriting and Approval: Once your income is verified, the lender will assess your credit score, debt-to-income (DTI) ratio, and down payment amount to approve your loan.

Benefits of Bank Statement Loans

Bank statement loans offer several advantages for business owners:

• No Tax Returns Needed: You won’t have to worry about how your tax deductions impact your reported income.

• Flexible Income Verification: These loans accommodate irregular income streams and account for the reality of business finances.

• Higher Loan Limits: Many bank statement loans offer higher loan limits compared to traditional mortgages, making them ideal for buyers looking at higher-priced homes.

• Customizable Terms: Some lenders offer flexible terms, including adjustable or fixed-rate options.

Drawbacks to Consider

While bank statement loans can be a great solution, they’re not without downsides:

• Higher Interest Rates: Because these loans pose a higher risk to lenders, the interest rates are typically higher than those for conventional loans.

• Larger Down Payment: Lenders may require a down payment of 10% to 30% of the purchase price, depending on your credit score and financial history.

• Stricter Credit Requirements: A solid credit score is usually necessary to qualify for a bank statement loan.

Who Are Bank Statement Loans Best For?

Bank statement loans are ideal for:

• Business owners and self-employed individuals with significant tax write-offs.

• Freelancers or gig workers with fluctuating monthly income.

• People who have strong cash flow but lack traditional income documentation.

Tips for Qualifying for a Bank Statement Loan

1. Maintain Consistent Deposits: Lenders like to see regular deposits in your bank account. Try to avoid large gaps in income.

2. Keep Business and Personal Finances Separate: Using separate accounts for your personal and business finances makes it easier for lenders to analyze your deposits.

3. Improve Your Credit Score: A higher credit score can help you secure better terms, including lower interest rates.

4. Save for a Larger Down Payment: The more you can put down, the better your chances of approval and favorable terms.

5. Work with a Mortgage Broker: A broker familiar with bank statement loans can connect you with the right lenders and help navigate the process.

How to Get Started

If you think a bank statement loan is right for you, here’s how to begin:

• Gather Your Financial Documents: Start collecting your bank statements, proof of business ownership, and any other relevant documentation.

• Research Lenders: Not all lenders offer bank statement loans, so look for one experienced in working with self-employed borrowers.

• Consult a Professional: Speak with a mortgage broker or financial advisor to ensure this loan type aligns with your financial goals.

Being a business owner shouldn’t prevent you from achieving your dream of homeownership. Bank statement loans offer a practical and flexible solution for self-employed individuals who need an alternative to traditional income verification. By understanding how these loans work and preparing your finances accordingly, you can take the first step toward owning your dream home.

Have questions about qualifying for a mortgage as a business owner? Contact us below so we can connect you with a lender that offers bank statement loans!