Can a 25% K-1 Partner Qualify on a Bank Statement Loan?

The Quick Read: Yes, a 25% partner can often qualify on a bank statement loan, but the K-1 is not what produces the income number. The K-1 mostly proves ownership, while qualifying income comes from 12 months of deposits, run through a lender’s expense factor and scaled to the ownership share. Whether it works depends on three things: personal or business statements, the lender’s ownership floor, and how much of the business’s net income a quarter share represents.

• The K-1 proves the ownership percentage. The deposits drive income.
• Personal statements and business statements are treated differently on ownership.
• Business statements run through an expense factor, then a 25% share is taken.
• The same deposits support a smaller loan for a 25% partner than for a 100% owner.
• If the real goal is a rental purchase, a DSCR loan may skip the ownership math.

Across the wholesale network Lendmire works with, this question comes up constantly. Partners in practices, restaurants, contracting firms and professional-services LLCs often hold a quarter stake. Their traditional personal-income documentation shows modest income after deductions. Their bank accounts tell a different story. That gap is what bank statement programs are built for. What follows is how the file actually gets built, where it breaks, and when a different loan fits better.

Why Is 25% the Line Everyone Talks About?

The 25% mark is a lending convention, not a federal rule. Conventional underwriting uses it to separate “self-employed” borrowers from borrowers who simply receive K-1 income. Per the Fannie Mae Selling Guide, borrowers with 25% or more ownership follow the self-employed income rules, while the K-1 guidance is written for borrowers below 25%.

That is contrast only. Conventional agency rules do not govern a bank statement loan. Still, many alt-doc programs borrowed the 25% benchmark as an ownership floor, and some set their own. Across the programs Lendmire sees, the floor shifts with the type of statements used. A few programs ask for less ownership on personal statements and more on business statements. Others treat the two the same. A 25% partner sits right at the common threshold, which is why the exact percentage on the paperwork matters.

Exactly 25% is not “under 25%.” A file at 24.9% can land in a different bucket than one at 25.0%. Ownership percentages that round, or that changed during the year, deserve a close look before the file is submitted.

What Does the K-1 Actually Do on This Loan?

On a bank statement file, the K-1 is ownership evidence first and an income document a distant second. The IRS instructions for Form 1065 say each partner’s share of profit, loss and capital is reported on the K-1. That percentage is the usual proof of a 25% stake.

The K-1 also explains why bank deposits matter. A partner can owe tax on a share of partnership income whether or not it was distributed. So K-1 income can run well above the cash a partner receives. It can also run below what actually moves through the accounts once deductions are taken.

Conventional agency guidance for owners under 25% asks for documented distributions or enough business liquidity, per Fannie Mae’s Ask Poli guidance on K-1 income under 25% ownership. Bank statement programs do not run that test. A K-1 showing a loss, or income with no distributions, does not automatically sink the file. The deposits still have to be there.

How Is a 25% Partner’s Income Calculated?

Qualifying income is built from the deposits, not the tax form. The loan is reviewed on documented income under the applicable program, subject to lender guidelines. The sequence is consistent across most programs, though the details vary by lender.

1. Pick the account type. Personal statements count deposits that trace to the business. Business statements go through an expense factor and an ownership share.

2. Prove ownership. The K-1 is the usual proof. The operating or partnership agreement, or a CPA letter, can back it up.

3. Average eligible deposits across 12 months of statements. Transfers between accounts and unexplained large deposits come out.

4. Apply the expense factor. Lenders set a flat factor by default. Some programs accept a different factor supported by an accountant-prepared ratio. Factors differ by lender, and none is promised.

5. Multiply by the ownership share. On a business-statement file, a 25% partner’s qualifying income is a quarter of the net business figure.

6. Review the rest of the file. Credit, reserves, debt-to-income and down payment all get reviewed under the specific program.

Step five is where minority partners feel the difference. Two borrowers with identical deposits in the business account do not qualify for the same loan if one owns 100% and the other owns 25%. Picture a four-partner firm where each partner holds a quarter. The business account shows steady deposits. After the expense factor, the net figure is split four ways. Each partner’s income is a fraction of what the firm clears in total.

Personal statements work differently. If a partner takes draws into a personal account, deposits that trace to the business can count without the ownership scaling. The catch is traceability. Underwriters want deposits that clearly come from the business, and many want evidence of a separate business account.

What Do Program Parameters Look Like?

Typical figures across select lenders in Lendmire’s wholesale network, subject to lender guidelines and borrower credit:

• Documentation is 12 months of business or personal bank statements.
• On a primary residence purchase or rate-term refinance, leverage runs up to 90% LTV through select lenders. The strongest files earn the top of the range.
• Owner-occupied cash-out on a primary residence or second home runs up to 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio.
• Investment-property cash-out tops out around 75% LTV. Investment purchase leverage on bank statement documentation varies by lender.
• Loan sizes run roughly $125,000 to $3,500,000, with reserves commonly around six months of the housing payment.

Occupancy decides the disclosure regime. An owner-occupied file is a consumer mortgage, and TRID applies. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID. Check which one applies to the property before the file is built.

Documenting Ownership When the Papers Disagree

Ownership proof is where otherwise clean files stall. The K-1, the operating agreement and a CPA letter should all show the same percentage. They often do not.

An amended agreement, a CPA letter explaining the difference, or a corrected K-1 all work, depending on the facts. Do not hand an underwriter two numbers and hope. Mid-year ownership changes need a clear explanation of the effective date and the percentage that applies going forward.

Edge Cases That Change the Answer

Below the lender’s floor. Some programs restrict or close the business-statement route for minority owners. A partner at 20% may still have a personal-statement path with some lenders. Others will decline the file. That is why comparing programs matters.

Combined ownership. Some programs aggregate co-borrowers’ ownership if each meets a minimum. That is lender-specific, not a general rule.

Unsupported expense claims. If a CPA letter claims a low expense ratio but the statements do not support it, the lender falls back to its own factor.

Multiple entities. A partner with stakes in two businesses needs each entity documented separately. Deposits cannot be double-counted across accounts.

Tenure. Self-employment history requirements vary. Two years is common, with less allowed under added conditions in some programs.

Guaranteed payments. These show up on the K-1 separately from the profit share. How they are treated depends on the program, so flag them early.

K-1 and Tax Return Route vs. Bank Statement Route

The same partner can look very different depending on the route.

A partner with heavy deductions often shows low taxable income. The bank statement route reads the deposits instead. That is the core reason owners of operating businesses look at these programs. Tax treatment varies; consult a qualified professional.

These loans are fully underwritten. “Bank statement” does not mean “no documentation.” Lenders still have to make a good-faith determination that the borrower can repay, and bank statements are one reliable record for that.

What If Personal Income Is the Wrong Tool?

For a 25% partner buying a rental, a DSCR loan can sidestep the ownership math entirely. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines, with no personal income documentation. The partner’s stake in the operating business stops mattering to the income calculation.

That is the honest trade-off. Bank statement income is scaled by a minority share, so it can cap the loan size. Rent from the property is not scaled by anything. Lendmire’s complete DSCR loans guide walks through how coverage works. Programs below 1.00 coverage are available through select lenders in the network, though leverage and terms adjust.

Choose the track early. Personal-income programs count the partner’s own share. DSCR counts property cash flow. Switching tracks mid-application means rebuilding the file.

For related K-1 questions, Lendmire has covered how to qualify on K-1 distributions for a bank statement loan.

Key Terms Defined

K-1: The tax form that reports each partner’s share of a pass-through business’s profit, loss and capital.

Expense factor: The percentage of business deposits a lender treats as operating costs before calculating income.

Ownership share: The percentage of the business a partner owns, usually proven by the K-1 and the entity agreement.

Distribution: Cash a partner actually receives from the business, which can differ from K-1 income.

Guaranteed payment: A payment to a partner for services, reported separately from the profit share.

DTI: Debt-to-income ratio, the monthly debts measured against qualifying income.

Readiness Checklist

• K-1s, operating agreement and any CPA letter all show the same percentage.
• 12 months of statements, with large deposits explained.
• A clear split between business and personal accounts.
• Self-employment history documented.
• A decision made on whether the property is owner-occupied or a rental.
• Reserves documented at around six months of housing payment.

Reach the team at 828-256-2183 or request a quote. Qualification is subject to lender guidelines and is not a commitment to lend.

About Lendmire

As a DSCR and non-QM mortgage broker, Lendmire (NMLS# 2371349) arranges financing through select lenders in its wholesale network, with DSCR investor programs across 41 markets, including Washington, D.C. Consumer bank statement programs are available in a narrower 16-state footprint. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide B3-3.4-19

2. IRS Instructions for Form 1065