How Bank Statement Loans Work for General Contractors

The Quick Read: A bank statement loan lets a self-employed general contractor qualify on deposits in 12 months of business or personal statements instead of tax-return net income. The lender screens out non-income credits, applies an expense factor to business deposits, averages the result across the months, and then underwrites the rest of the file normally.

• Qualifying income comes from deposit averages, not from the bottom line of a Schedule C or business return.
• Business-account deposits take an expense factor. The lender sets it from the business profile, not the borrower.
• Transfers, loan proceeds, and pass-through money are the usual problem deposits for contractors.
• Primary-residence leverage reaches up to 90% LTV on a purchase or rate-term refinance through select lenders. Owner-occupied cash-out tops out at 80%.
• Rental properties are usually a different conversation, and often a DSCR one.

This article covers home financing for a contractor’s own residence or second home. If you are looking for working capital, equipment financing, or a line of credit for the business itself, that is a separate product category.

Why Do Contractor Tax Returns Understate Income?

Contractor returns often show less income than the business actually produces. Materials, subcontractor payments, vehicles, tools, and depreciation are all legitimate write-offs. They shrink taxable income, which is good at filing time and painful at the mortgage desk.

A conventional lender reads that smaller number and sizes the loan from it. A bank statement program reads the cash that moved through the account. That is the whole reason the product exists for builders, remodelers, and trade operators with strong revenue and modest reported profit.

Non-QM lending has grown alongside the self-employed population. Scotsman Guide reports that bank statement programs let self-employed borrowers qualify using 12 to 24 months of deposits, and frames non-QM as growing among self-employed borrowers and investors. Across Lendmire’s wholesale network, the typical documentation window is 12 months of statements, though individual lender program sheets differ.

How Does the Loan Work, Step by Step?

The process runs in six steps. Each one has a contractor-specific wrinkle.

1. Choose the statement source. Business or personal statements, depending on where your receipts actually land. The account that shows the cleanest picture of the operation usually wins.

2. Screen the deposits. Underwriters remove anything that is not revenue: transfers between your own accounts, loan proceeds, and one-off credits.

3. Apply the expense factor. On business statements, the lender takes a share of deposits as business expenses. Factors vary by lender and business type, and the lender sets them.

4. Average to monthly income. Eligible deposits, after the factor, are divided by the number of months in the window.

5. Run the rest of the file. Credit, reserves, debt-to-income, and the property all still count. Reserves commonly run around 6 months of the housing payment.

6. Underwrite individually. Every file is reviewed on its own, subject to lender guidelines.

A simple way to see the logic is this: eligible deposits are multiplied by what remains after the expense factor, and the result is divided by the number of months. No figures are needed to understand the shape. Two contractors with identical deposits can land at different qualifying incomes if their business profiles draw different factors.

This is not a no-doc product. It is reviewed on documented income under the applicable program, subject to lender guidelines. The lender still has to make a reasonable, good-faith repayment determination. The CFPB’s ability-to-repay guide lists eight factors a creditor must consider, including income or assets, debt obligations, and credit history. Bank statements are one permitted way to document the income side.

Key Terms Defined

Expense factor: The percentage of business deposits the lender treats as operating costs rather than income.

Qualifying deposits: Deposits the lender accepts as genuine business revenue after screening.

Pass-through money: Funds that arrive in your account only to be paid out to someone else, such as subcontractors or suppliers.

Commingling: Mixing business receipts and personal spending in one account.

Non-QM: A loan that falls outside standard qualified-mortgage documentation rules but is still fully underwritten.

How Does an Underwriter Read a Contractor’s Deposits?

An underwriter reads them skeptically, because contractor accounts are messy. Money flows in from clients, flows out to subs and suppliers, and sometimes flows in from a credit line to cover a gap.

The likely problem items, from lived file experience across the network:

• Owner contributions and transfers. Moving your own money between accounts is not income.
• Draws on a credit line. Borrowed money is not revenue.
• Refundable customer deposits. If the money may go back, lenders hesitate to count it.
• Pass-through payments. A client pays you for materials and subs, and you pass most of it along. The deposit looks large, but the economics are thin.

Pass-through is the quiet file-killer for general contractors. A GC running a subcontractor-heavy operation can show impressive gross deposits with thin real margin. The expense factor exists partly to account for this, and lenders weigh the business type, the use of subcontractors, and the operating structure when setting it.

Commingled accounts add friction. When one account holds both business receipts and groceries, the underwriter has to separate the two, and the file takes more work. Opening a dedicated business account well before applying is one of the cleanest fixes.

Personal or Business Statements: Which Fits a GC?

It depends on where the money lands and how cleanly it is separated. Business statements usually carry an expense factor. Personal statements may treat deposits differently, subject to the program.

For a solo owner-operator who pays themselves regularly, personal statements can tell the cleaner story. For an owner with employees and a real operating account, business statements are the natural source. A GC with heavy subcontractor use should expect the business-statement route to draw a heavier cost load.

What Is the Expense Factor, and Can a CPA Change It?

The expense factor is the lender’s estimate of how much of your deposits went to running the business. A flat percentage is common, and the lender sets it from the business profile. Scotsman Guide notes that a lender may use a standard factor, or instead rely on a profit-and-loss statement or an expense statement prepared by a third-party tax professional.

For Lendmire’s network, owner-occupied cash-out uses a fixed expense ratio, with a more favorable 75% treatment available when an accountant prepares the ratio. That treatment applies to cash-out on a primary residence or second home. Purchase and rate-term factors follow each lender’s program sheet, so no single universal formula applies.

A CPA-prepared ratio is worth the effort when your real costs run well below a flat factor, for example an owner-operator with few subs and modest materials. It is less useful when your costs truly are heavy, because the accountant’s number may land above the default. Ask your CPA to run the ratio before you commit to the route.

What Does the Math Look Like for Three Kinds of GCs?

Think in logic, not dollars. These are hypothetical patterns, not program promises.

The solo owner-operator. Light on subs, paid mostly in labor. Deposits are fairly clean, and the expense factor reflects modest costs. This borrower often gets the strongest qualifying income relative to deposits, especially with a CPA-prepared ratio.

The owner with employees. Payroll and equipment push real costs up. Business statements fit, and the factor tends to be heavier. Qualifying income may land well below gross deposits, so check the numbers before house hunting.

The sub-heavy general contractor. Large pass-through deposits inflate the top line. The lender discounts them through a heavier factor, or the underwriter may ask which deposits are pure pass-through. Documenting contracts and paid-out subcontractor invoices can help the file make sense.

Lumpy receipts matter too. Progress payments, draws, and seasonal gaps create swings month to month. A longer window smooths them out, which is logical rather than a published rule. The CFPB’s guide also notes that income need not be full-time or salaried and can include seasonal income, which fits construction cash flow.

What Do Underwriters Flag on Contractor Accounts?

Declining deposits are the sharpest concern, since underwriters want to see stable or growing income. If your last few months dipped, the explanation matters as much as the numbers.

Ownership percentage is another edge. If you own part of a company, or hold it through an S-corp structure, the lender confirms your share against corporate documents before counting the income.

What Does Qualification Look Like?

Expect 12 months of statements, a license or business registration, proof of business insurance, and sometimes a CPA or tax preparer letter. Lenders generally want a history of self-employment, often around two years, though newer contractors can sometimes show continuity through prior industry experience, subject to program terms.

The network parameters, framed as typical and subject to lender guidelines:

• Primary residence purchase or rate-term: up to 90% LTV through select lenders, with stronger files earning the top of the range.
• Owner-occupied cash-out (primary or second home): up to 80% LTV, never the purchase ceiling.
• Asset-depletion alternative on a primary residence: up to 80% LTV.
• Loan amounts: roughly $125,000 to $3,500,000.
• Reserves: commonly around 6 months of the housing payment.

Occupancy decides the disclosure regime. An owner-occupied file is a consumer mortgage. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID. Consumer mortgage availability for this lane covers 16 states.

Bank Statement, 1099, P&L, or DSCR?

The right program depends on what you are buying and how you document income.

This is the point that matters most for contractors who also buy rentals. A bank statement loan underwrites you. Every new mortgage built on your personal income stacks against the same debt-to-income ratio. A DSCR loan judges each rental on its own income against its own obligation, so portfolio growth does not eat into your personal qualifying capacity. The complete DSCR loans guide walks through how that works, and select lenders in the network offer programs below 1.00 coverage, with leverage and terms adjusting accordingly.

Investor cash-out on bank statement documentation tops out around 75% LTV. Investment purchase leverage varies by lender, so treat any figure as lender-specific. For rental-focused leverage, DSCR is the better framework.

Contractors also weighing equity access can read Lendmire’s piece Bank Statement Loans For Contractors And Builders: Complete Guide.

Preparing Your Accounts Before You Apply

Start a few months ahead. Separate business and personal accounts, stop moving money between them, and document any large deposit that is not a client payment. Gather your license, insurance proof, and ownership documents. If a CPA will prepare an expense ratio, ask early, because it can change which program makes sense.

Tax treatment varies; consult a qualified professional.

Pros and Cons

The upside: you qualify on real cash flow instead of a return trimmed by write-offs. The tradeoffs: terms may cost more than a conventional loan, reserves matter, and a messy account can cost you income on paper. If your traditional personal-income documentation already shows strong income, conventional may be simpler and cheaper. The flip point is when your write-offs are large enough that returns understate what you really earn.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage built around DSCR investor lending, with programs available in 41 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Scotsman Guide: One out of 20 mortgages are non-QM

2. CFPB ATR/QM Small Entity Compliance Guide

3. Scotsman Guide: Rev Up the Engine for Non-QM Lending

4. CFPB ATR/QM Compliance Guide (income and seasonal income)