How A Bank Statement Lender Averages Deposits When One Year Runs Low — The Quick Read: A bank statement lender doesn’t apply one fixed formula. It runs your deposit average two ways — 12 months and 24 months — and uses whichever window produces the stronger, defensible qualifying income. A weak recent stretch doesn’t automatically sink the file; a weak prior year sometimes gets absorbed into a longer average instead.
That’s the short version. The longer version depends on which year is low, how low, and why.
Key Terms Defined
Bank statement loan — a non-QM mortgage that qualifies a self-employed borrower using deposit history instead of tax-return income.
Expense factor — a percentage the lender subtracts from gross business deposits to estimate what’s actually available as personal income, since gross revenue isn’t the same as take-home pay.
Lookback period — the span of statements reviewed, typically 12 or 24 consecutive months.
Qualifying income — the monthly income figure the lender actually uses to size your loan, after deposits are screened and the expense factor applied.
Non-QM — short for non-qualified-mortgage, meaning the loan sits outside the standard federal income-documentation rules that govern most conventional mortgages.
The Core Mechanics — Add, Screen, Divide
The math itself is simple. Total eligible deposits, strip out transfers and non-income credits, apply an expense factor to business accounts, then divide by the number of months in the lookback period. The judgment call sits entirely in which lookback period gets used.
Across Lendmire’s wholesale network, documentation runs on 12 or 24 consecutive months of personal or business statements. Qualifying income is calculated by dividing eligible deposits by those months after an expense ratio is applied. This structure — not a single hard-coded rule — gives a loan officer room to pick the window that fits your income story.
Industry practice treats the 12-vs-24 choice as a strategic decision, not a formality. As mbanc explains, 12 months works better when recent income is stronger than older income, because it isolates the good stretch. Twenty-four months works better when income is consistent, or when a recent soft patch needs to be blended against a stronger prior year. A competent loan officer calculates both and presents whichever produces the higher, more defensible number.
What Actually Happens When One Year Runs Low
If your most recent 12 months ran weak but the prior 12 months were strong, the 24-month average often rescues the file. Pulling the stronger year into the blend raises the average, and a longer track record gives the underwriter more comfort that the weak stretch was a blip rather than a trend.
Say a borrower’s deposits averaged well above the prior year’s pace during Year 1, then slowed noticeably in Year 2. Run 12 months alone, and qualifying income reflects only the weaker recent year. Run 24 months, and the blended average sits meaningfully higher, per the mbanc scenario framework — because the stronger year gets folded in rather than discarded.
This doesn’t mean averaging covers up every decline. Underwriters look at direction, not just the blended total. A measurable downward trend between the two years — the kind that would visibly affect debt-to-income math — gets flagged even inside a 24-month calculation. The file isn’t automatically declined. But it does draw more scrutiny: a request for an explanation letter, a more conservative recompute, or additional reserves.
There’s a point where averaging stops being the remedy. Conventional underwriting draws this line clearly. Fannie Mae guidance treats a year-over-year drop north of 20% in self-employed income as a trigger for extra scrutiny, per Fannie Mae’s own underwriting guidance summarized by homebuyer.com. Gustan Cho Associates frames the agency rule bluntly: if the most recent year is lower than the one before it, the underwriter uses the lower, most recent 12 months rather than averaging the two — no blending, no benefit of the doubt.
Bank statement underwriting borrows that same instinct once a decline gets severe enough. A recent-year figure that’s dramatically below the prior year’s pace — not a soft quarter, but a collapse — tends to get treated the way conventional underwriting treats it: use the lower number, or decline the income outright. The deposit-based math is more flexible than the tax-return version, but flexible doesn’t mean unlimited.
The Expense Factor — And How a CPA Letter Moves It
The expense factor decides how much of your gross business revenue actually counts as income. It can move the coverage figure more than the lookback window does. There’s no single factor that fits every business — a solo consultant and a six-employee contracting firm carry completely different overhead.
Across Lendmire’s network, default expense ratios generally scale with business type and staffing, running lowest for solo, no-employee service businesses and climbing as headcount grows or the business shifts toward product-based revenue. A borrower whose actual overhead runs lower than the default factor can typically document that with a CPA-prepared letter or a profit-and-loss statement — the latter capped at an 80% allowance — and that documentation can raise qualifying income regardless of which lookback period is chosen. Transfers from the borrower’s own business into a personal account count in full, at 100%, which matters a lot for owners who sweep profit into a personal checking account rather than drawing a formal salary.
This is worth pairing with the lookback-window decision, not treating separately. A borrower facing a soft recent year has two levers at once: choose the window that produces the stronger average, and document a lower expense ratio if the default factor understates real take-home income. Used together, those two moves often do more for qualifying income than either one alone.
Edge Cases That Change the Math
A few patterns show up often enough in deposit files that they deserve their own mention.
One-time deposits distort the average either way. A large deposit from selling equipment or a one-off asset sale isn’t recurring income, and it gets stripped from the eligible total before the average is calculated — whether it helped or hurt the borrower’s case.
Pass-through deposits in contracting and construction. A builder whose bank account shows large draws that closely match near-term subcontractor payments isn’t pocketing that full amount as income. Lenders typically address this by applying a higher effective expense factor to that file, or by excluding the pass-through portion once the pattern is documented — a general contractor should expect this line item to draw more scrutiny than a solo tradesperson’s file.
Seasonal businesses lean toward 24 months. If your income swings hard by season, a longer window smooths the average instead of letting one slow quarter understate your real annual capacity.
Ownership percentage matters on multi-owner businesses. A borrower who owns a slice of a company, not the whole thing, may have qualifying income limited to their documented ownership share, access, and distributions.
Personal and business accounts are usually scored separately. Personal deposits generally skip the expense factor entirely, since they don’t carry built-in business overhead the way a company account does — blending the two isn’t the default approach.
Why This Rarely Touches a DSCR Loan — But Sometimes Does
DSCR loans qualify mainly on whether a rental property’s own income covers the payment, subject to lender guidelines. They don’t rely on the borrower’s personal deposit history at all. That’s the core reason an investor buying rental property usually never runs into this deposit-averaging question in the first place. Lendmire’s complete DSCR loans guide walks through how that property-level qualification works from start to finish.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
This topic can bite an investor hardest on the personal side of a portfolio. That includes a primary residence purchase, a bridge loan, or any file where the borrower’s own business income — not a property’s rent — is the qualifying source. Here’s one detail worth flagging for anyone running both a rental portfolio and an operating business through the same bank account: rental income or property-management fees that flow through a business account used for a bank-statement-qualified loan can get swept into the expense-factor haircut along with ordinary operating deposits. This distorts both the true business income and the true rental cash flow. Keeping rental deposits and operating-business deposits in separate accounts is one of the few things an investor fully controls going into a bank statement application.
Across Lendmire’s wholesale network, bank statement financing runs from $300,000 to $30,000,000 through two separate program ladders — a portfolio non-QM program carrying files to $6,000,000, and a bank portfolio program that carries twelve-month-statement files up its own ladder to $30,000,000, stepping down through 65%, 60%, and 55% leverage bands as loan size climbs. Credit runs on a 660 floor on the portfolio side and 680 on the bank program, with reserves typically ranging from three months on smaller loans to nine months on larger ones. Every file above $4,000,000 gets reviewed case by case before submission — leverage compresses at that size, and nothing above that threshold is a flat “up to” figure.
Here’s one practitioner note worth passing along: files with a genuinely declining trend rarely get fixed by picking a better window alone. The stronger files pair the 24-month blend with a documented explanation — a lost client, a temporary slowdown, or a documented recovery in the most recent quarters. Underwriters want to see the story behind the number, not just the number itself.
Common Mistakes Investors Make
A few habits consistently cost borrowers qualifying income. Waiting until the application is already submitted to raise a CPA letter, rather than lining it up before the lender runs the default expense factor. Assuming a 24-month average always helps — it doesn’t, if the recent 12 months are actually the stronger period. Commingling rental deposits with an operating business account, which muddies both figures. And treating a soft year as automatically fatal, when in many cases the right lookback window and a documented explanation carry the file through.
Frequently Asked Questions
Does a declining year always mean a lower interest rate offer or worse terms?
Not necessarily. It affects qualifying income and, in turn, how much you can borrow — not pricing. A weaker recent year can be offset by a stronger 24-month blend or a documented expense-ratio adjustment; program terms depend on the specific lender’s guidelines and full underwriting review.
Can I choose which lookback period my lender uses?
You can ask for both to be calculated, but the lender decides which one is used to qualify you, based on which produces a defensible, documentable income figure. Most experienced loan officers run both automatically before presenting an option.
What if my business had one unusually large deposit that isn’t really income?
That deposit typically gets excluded from the eligible total if it’s clearly a one-time event — an asset sale, a loan proceed, or a transfer — rather than recurring business revenue. Documentation explaining the deposit’s source helps the underwriter make that call quickly.
Does self-employment tax filing under a Schedule C change how deposits are treated?
Not directly — bank statement programs qualify on deposit history rather than the net income reported on IRS Schedule C, which is one of the reasons these loans exist for business owners whose traditional personal-income documentation understate their real cash flow through legitimate write-offs.
Is a bank statement loan the right tool for buying a rental property instead of a primary residence? Often not the best fit. A DSCR loan is reviewed on the rental property’s own income rather than the borrower’s deposit history, which sidesteps this entire averaging question for investment purchases.
If you’re weighing a bank statement loan against a rental-property purchase, Lendmire can help compare how qualifying on a low or uneven year stacks up against structuring around a single declining year of deposits, based on your specific income pattern and goals. Reach Lendmire at 828-256-2183 to talk through which path fits your file.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
Self-employed borrowers can compare both super jumbo programs on Lendmire’s self-employed mortgages page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 40 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. mbanc – 12-Month vs. 24-Month Bank Statements
2. homebuyer.com – Fannie Mae Self-Employed Underwriting Guidelines
3. Gustan Cho Associates – Declining and Irregular Income Guidelines
4. IRS – About Schedule C (Form 1040)
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.
