Can 1099 Earners Use an Expense Factor on a Bank Statement Loan?

The Quick Read: Yes. A bank statement loan handles a 1099 earner’s business costs through an expense factor, a percentage the lender subtracts from your averaged eligible deposits, and the lender assigns that percentage based on your account type, business structure, and any CPA documentation, not you.

• The lender picks the factor. You influence it only through the documents you provide.
• Personal-account statements often carry little or no factor, but the deposits must trace to your work.
• A separate 1099-only program applies its own fixed allowance. It is a different path and not every lender offers it.
• On the network’s programs, qualifying income comes from 12 months of statements, subject to lender guidelines.
• Buying a rental? A DSCR loan skips your personal expense factor and looks at the property’s rent.

How Does the Expense Factor Work on 1099 Deposits?

The lender starts with deposits, removes what is not income, subtracts the factor, and divides by the number of months. The result is your monthly qualifying income. Across the wholesale network Lendmire places files with, the sequence is consistent even though the numbers differ by lender.

Here is the five-step version:

1. Pick the account type. Contractors paid straight into a personal account usually use personal statements. Owners of an LLC or S-corp whose revenue runs through the entity usually use business statements.

2. Pull the statements. The network’s typical documentation is 12 months. Some lenders elsewhere accept 24 months.

3. Strip non-income deposits. Transfers between your own accounts, loan proceeds, gifts, refunds, and one-time windfalls come out. So do deposits that look like a spouse’s pay or a family transfer.

4. Apply the factor. Business statements usually take a fixed percentage cut. Some files use a CPA-prepared ratio or a profit-and-loss statement instead.

5. Average over the months. On an owner-occupied loan, that figure then goes through a debt-to-income test.

Run the numbers on a simple index. Assume your average monthly eligible deposits equal 100. Suppose a lender applies a factor that removes 40. Your qualifying income is 60. These are modeled assumptions, not a quote, and a different lender could remove more or less from the same statements.

Who Sets the Factor?

The lender does. You cannot choose it, negotiate it on a phone call, or declare it on the application. It comes from the lender’s guidelines and your documentation.

Business structure drives much of it. In practice, a solo service business with no employees tends to land at the gentler end of a lender’s range. A business with several employees, or one that sells physical product, tends to land higher, because those businesses carry heavier costs. Never assume a number until a specific program sheet says so.

There is also no national formula. The federal rules on mortgage underwriting, covered in more depth below, require lenders to verify the income they rely on. They do not set an expense-factor percentage. That figure is a lender and investor guideline.

Personal or Business Statements: Which Gets the Factor?

Business statements usually carry the factor. Personal statements often carry less, or none, but only if the deposits clearly come from your self-employment.

Picture a freelance designer paid by a handful of clients straight into a personal checking account. The underwriter will ask which deposits are client payments and which are a spouse’s paycheck or a transfer from savings. Clean, labeled deposits make that review easy. A single account mixing everything makes it slow and sometimes costly to your income number.

Can You Lower or Replace the Factor?

Sometimes. The two common alternatives are a CPA or tax-preparer expense letter and a CPA-prepared profit-and-loss statement. Whether either is allowed depends on the program, and many programs limit who counts as an eligible preparer.

A CPA ratio can come in below a lender’s default for businesses with genuinely low costs. It can also come in higher than the default, which is why it is optional on programs that apply a fixed factor automatically. A solo consultant with few costs is often already at the best available ratio without a letter.

Some programs that accept a profit-and-loss statement test it against your deposits. If the two do not line up, the statement does not help.

Bank Statement Loan or 1099-Only Program?

A 1099-only program works from your 1099 forms and applies its own fixed allowance for expenses. It is a separate underwriting path, and some lenders do not offer it. When the allowance is smaller than the factor on a bank statement file, the 1099 path produces higher qualifying income. The exception is a CPA-certified low ratio on the bank statement side.

Here is the same borrower under both methods, using modeled figures only:

The break-even test is simple. Compare the two program sheets for your situation. If the 1099 allowance is smaller and your 1099 totals match your real receipts, the 1099 path usually wins. If your 1099s understate what you actually earn, bank statements may carry more.

Form 1099-NEC reports nonemployee compensation, and the IRS instructions for Forms 1099-MISC and 1099-NEC set a $2,000 reporting threshold. Small payers below that line may never send you a form. Cash, card, and transfer income may not produce a 1099 at all. In those cases bank statements are the main path. Other form types, such as a 1099-K or 1099-MISC, may be treated differently by a given program, so ask before you assume they count.

Edge Cases That Change the Math

• Mixed or commingled accounts. Underwriters may ask for personal statements or written explanations of large or irregular deposits.
• Several payers. Many clients help, since the income does not hinge on one source. Each large deposit still needs to trace to work.
• Seasonal or uneven income. A 12-month average smooths busy and slow months, but a clear downward trend in deposits is a red flag for the underwriter.
• Entity owners. An LLC or S-corp owner generally belongs on business statements. Entity income may not fit a 1099-only program.
• Deposit scrubs. The usual surprise is how much comes out in step three. A large transfer from savings or a one-time refund can shrink the average before any factor is applied.

How Does the Factor Feed Your Purchase Power?

A lower factor means more qualifying income, and more qualifying income gives you more debt-to-income room on an owner-occupied purchase. That is the whole chain. Income minus the factor sets the ceiling, and your existing debts plus the new housing payment must fit under it.

Leverage runs on a separate track. On a primary-residence purchase or rate-term refinance, select lenders go up to 90% LTV, and stronger files earn the top of that range. Loan sizes run roughly $125,000 to $3,500,000, and reserves commonly run around six months of the housing payment. On a cash-out, the ceilings are lower: up to 80% LTV on a primary residence with a fixed expense ratio, 75% with an accountant-prepared ratio, and up to 75% on a second home. An investment-property cash-out tops out around 75% LTV. All of this is subject to lender guidelines and credit approval.

Short on deposit-based income? Qualifying from liquid assets runs to about 80% LTV on a primary residence, which some self-employed borrowers prefer. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Do the Rules Require Documentation Here?

Yes, though the documents differ. Under the federal ability-to-repay rule, lenders must verify the income or assets they rely on using reasonably reliable third-party records, per the CFPB’s small entity compliance guide. Bank statements count as acceptable records. Non-QM lenders must also consider specified factors and use records specific to the borrower, as CFS Review’s commentary explains.

Occupancy decides which regime applies. A bank statement loan on an owner-occupied home is a consumer mortgage, so TRID disclosures apply. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID. Non-QM means different documents, not none. Lendmire’s consumer mortgage licensing covers 16 states.

Investors: When to Skip the Factor Entirely

If you are buying a rental, the expense factor may not matter at all. A DSCR loan is reviewed primarily on the property’s rent covering the payment, subject to lender guidelines. Your personal income and expense factor do not enter the picture. Select lenders in the network also offer programs below 1.00 coverage, though leverage and terms adjust.

Scaling is the other difference. A bank statement loan reuses the same personal income every time you borrow. Each DSCR loan stands on its own property. The complete DSCR loans guide walks through how that works, and it is usually the better fit for a self-employed investor buying several rentals.

Bank statements make sense when you are buying your own home, a second home, or pulling cash out of a primary residence.

Mistakes That Shrink Qualifying Income

• Mixing personal and business deposits in one account.
• Moving money between your own accounts without a paper trail.
• Assuming a CPA letter will beat the default factor. It may not.
• Ignoring a drop in recent deposits.
• Applying without a 1099 or other documentation of the work, since the loan is reviewed on documented income under the applicable program, subject to lender guidelines.
• Assuming one lender’s factor applies at another lender.

Key Terms Defined

Expense factor: The percentage a lender subtracts from your eligible deposits to account for business costs.

Bank statement loan: A mortgage that is reviewed around documented income from your deposits, subject to lender guidelines.

1099-only program: A mortgage that works from your 1099 forms and a fixed expense allowance.

Qualifying income: The monthly figure left after the lender removes non-income deposits and applies its factor.

Debt-to-income (DTI): Your monthly debts divided by your qualifying income, used on owner-occupied loans.

Next Steps

If you are self-employed and want to see how the numbers work, Lendmire can help you compare bank statement loan options based on your deposits, the property, credit profile, leverage, and your goals. The site’s illustrative calculator gives a rough estimate only. A broker looks at the full file.

This article is general information, not legal or tax advice. Tax treatment varies; consult a qualified professional, such as an attorney or CPA, about your own situation.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Bank statement, P&L-only, 1099-only and asset-based mortgages for self-employed and high-net-worth borrowers are arranged through wholesale lenders on primary residences, second homes and investment properties; every file is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. IRS Instructions for Forms 1099-MISC and 1099-NEC

2. CFPB ATR/QM Small Entity Compliance Guide

3. CFS Review: CFPB Addresses Non-QMs Under ATR