How a 24-Month Bank Statement Loan Works as a 1099 Contractor

The Quick Read: The lender takes 24 months of your deposits, removes transfers and other money that is not earnings, applies an expense factor if the deposits are business income, averages what is left into one monthly figure, and tests it against your debts instead of reading your traditional personal-income documentation.

• Your income comes from the deposits, not from the net profit on your return.
• Business-account deposits take an expense factor. Personal-account programs usually skip it.
• Transfers, loan proceeds, refunds and one-time windfalls come out before any averaging.
• The result still goes through a debt-to-income test, plus credit, reserves and an appraisal.
• A 24-month lookback smooths seasonal income. It can hurt you if your income is climbing fast.

Many 1099 contractors earn well and still look weak on paper. Write-offs shrink taxable income, and a conventional underwriter reads the shrunken number. This guide walks through the mechanics in order: what the loan is, how the math runs, where it bends, and how to pick a path.

Key Terms Defined

Bank statement loan: A mortgage that is reviewed on documented income under the applicable program, using your account deposits as the income record instead of traditional personal-income documentation.

Lookback period: The number of consecutive months of statements the lender reads. Programs run on 12 or 24 months, and the lender’s program sheet sets which are offered.

Expense factor: The share of business deposits the lender treats as operating cost. The program and the file set it, not the borrower.

Qualifying deposits: Credits the lender accepts as your earnings after removing transfers, loan proceeds, refunds and one-time items.

Debt-to-income (DTI): Your total monthly debts divided by your qualifying monthly income. Lower is better.

Non-QM: A loan that falls outside the standard “qualified mortgage” box and is underwritten under a lender’s own program guidelines.

LTV (loan-to-value): The loan amount as a percentage of the property’s value.

Reserves: Liquid savings, counted in months of housing payments, that you hold after closing.

Why Does 1099 Income Break Conventional Underwriting?

Conventional underwriting reads your tax return, and a contractor’s return is built to lower taxable income. Depreciation, vehicle costs, equipment, contractor payments and home-office costs are legitimate deductions. They also make a strong earner look modest.

Irregular pay adds a second problem. A contractor may land three large invoices in one quarter and none in the next. A single-year snapshot can miss the real earning power.

Lenders also treat a 1099 earner as self-employed. Most want about two years of steady self-employment, plus proof the business is real. That can mean a business license, client relationships, business insurance or a letter from a CPA or tax preparer.

A bank statement loan fixes the mismatch. It reads the money that actually landed in your account.

How Does the 24-Month Calculation Work, Step by Step?

The calculation has six moves. Programs differ on the details, but the order stays the same.

1. Pick the account type and window. You supply consecutive statements with no gaps, from personal or business accounts. On 24 months, that is two full years of statements.

2. Total every deposit. The lender adds up all credits in the window first.

3. Strip out non-income. Transfers between your own accounts, loan proceeds, refunds and one-time windfalls come out.

4. Apply the expense factor to business deposits. This estimates net income. A CPA letter or profit-and-loss statement can support a lower factor on many programs. The lender decides, and no factor is universal.

5. Average over the months. Adjusted deposits divided by the months in the window give one qualifying monthly income.

6. Run DTI. That income goes through the same debt test as any other borrower’s.

The formula on one line: (total deposits − non-income credits − expense factor, if business) ÷ months in window = qualifying monthly income.

Most programs Lendmire places files with treat step 3 as the step that decides how big the number gets. A contractor who moves money between personal and business accounts often loses more income there than anywhere else.

Documentation in Lendmire’s network is built around 12 months of statements as the baseline. A 24-month lookback is a variation, and availability follows each lender’s program sheet.

What Does a Messy 24-Month Ledger Look Like?

Real ledgers are not tidy. Clean example files make the method look easy and hide where income disappears.

The table below uses modeled shares of total deposits, not real borrower data. It shows what a typical review does with each type of credit.

In this model, about 80% of deposits survive the screen, so roughly one dollar in five drops out before any averaging. The expense factor then applies to the surviving 80% if the account is a business account. That 20% of “other” credits is what many contractors forget when they estimate their own income.

Your 1099 forms matter here too. A lender may compare the deposits to your 1099s to confirm the business is real and the pay is recurring. Deposits that do not trace back to clients, or payment-app income spread across several apps, invite questions.

Does No Tax Returns Mean No Underwriting?

No. A lender must still verify income or assets, debts and credit history before approving a loan. The CFPB’s ability-to-repay compliance guide lists bank statements among the acceptable verification records, alongside traditional personal-income documentation and payroll statements. A bank statement loan therefore rests on a recognized record.

Non-QM means the loan sits outside the safe-harbor box. It does not mean the lender skips the repayment test.

Underwriting here looks much like a conventional file, with one change: the statements set the income number. A lender comment in a BiggerPockets discussion on financing for the self-employed makes the same point. You still have to qualify with all your other liabilities.

Occupancy decides the paperwork. An owner-occupied bank statement loan, such as a primary residence or second home, is a consumer mortgage, so consumer disclosure rules (TRID) apply. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from those rules. Know which one your property is before you compare offers.

12 Months or 24 Months: Which Helps a 1099 Contractor?

It depends on the direction of your income. A longer window smooths seasons and one-off spikes. It also drags down a contractor whose income is climbing.

The table models one borrower per row, indexing the 24-month average to 100. These are illustrative numbers, not market data.

A few patterns show up often:

• Rising income. A contractor who doubled client count in the last year gives up income on a 24-month average. The older months pull the figure down.
• Seasonal or lumpy income. A 12-month window that happens to catch mostly busy months can overstate income. The 24-month view flattens that, and underwriters tend to trust it more.
• Recent switch from W-2 to 1099. Two years of self-employment is the common expectation. Exceptions are program-specific, so ask before you assume.
• One big client versus many. Heavy dependence on one payer can draw extra questions about whether that income will continue.
• Falling income. A 24-month average can look better on paper, but a declining trend is a flag. The lender may weight the recent months.

You do not always get to pick the window. The lender’s program sheet sets what is offered, so model both before you apply.

Personal Statements or Business Statements?

Business statements carry an expense factor. Personal statements usually do not, but the lender may want proof the business exists. Which account holds your client payments often decides which path you use.

Commingled accounts are the common snag. When client payments and personal spending share one account, the lender has to sort the deposits by source. Owner draws and owner pay are not revenue, and the deposits must show where the money came from.

Bank Statement, 1099-Only, or DSCR: Which Path Fits?

The path depends on how you are paid and what you are buying. A 1099-only program starts from the 1099 forms your clients issued. A bank statement program starts from deposits. A third path, the DSCR loan, skips your personal income entirely.

DSCR means debt service coverage ratio. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. It exists only for investment property. Lendmire’s complete DSCR loans guide covers it end to end.

Programs below 1.00 coverage are available through select lenders in the network, but leverage and terms adjust.

The tradeoff is simple. DSCR avoids personal-income documentation, but the property has to cash-flow. A bank statement loan lets a strong contractor buy a property that does not cash-flow on its own. It also adds your personal DTI, and every other personal debt counts against you. A growing portfolio can erode your capacity over time.

LLC-titled purchases generally point toward DSCR, depending on program guidelines. Many contractors use both, one for the home and one for rentals.

What Leverage and Loan Size Should You Expect?

Leverage depends on occupancy and transaction type. These are typical ranges from select lenders in Lendmire’s wholesale network, subject to lender guidelines:

• Primary residence purchase or rate-term refinance: up to 90% LTV. The strongest files earn the top of that range.
• Primary residence on asset depletion: up to about 80% LTV. This is reviewed against liquid assets instead of deposits.
• Owner-occupied cash-out (primary or second home): up to 80% LTV with a fixed expense ratio. An accountant-prepared ratio lowers that ceiling to 75%, and the exact figure depends on loan size and credit.
• Investment property cash-out: tops out around 75% LTV.
• Investment property purchase on bank statements: leverage varies by lender. Investor-focused leverage guidance sits on the DSCR side.

Loan amounts typically run from $125,000 to $3,500,000. Reserves commonly sit around six months of the housing payment. Term length follows each lender’s program sheet. Do not assume extended or interest-only structures. Those are DSCR-side offerings.

What Documents Do You Need, and What Can You Skip?

Expect statements, identity documents and proof of self-employment. You can generally skip traditional income documentation and W-2s as the income source, though a lender may still ask for them as support. Programs differ.

A typical file includes:

• Consecutive bank statements for the lookback window, personal or business.
• A business narrative, entity documents or a business license.
• 1099 forms or other proof of two years of self-employment.
• A CPA or tax-preparer letter, which can support a lower expense factor.
• Proof of reserves and a credit review.

What Do Underwriters Flag, and How Do You Prepare?

Underwriters flag instability and unclear sourcing. Start cleaning up three to six months before you apply, since the lookback window reads your history, not your plans.

Common file-killers:

• Overdraft and NSF activity. An NSF is a returned or bounced item. No uniform industry threshold exists, and tolerance is program-specific.
• Gaps in the statement chain. Missing months break the average.
• Switching banks mid-window. You then need clean statements from both.
• Mixed accounts. Personal spending in a business account muddies the sourcing.
• Large unexplained deposits. These often trigger a letter of explanation.
• Declining income. A downward trend can cut the figure the lender uses.

To prepare, route client payments into one consistent account. Keep savings transfers labeled and separate. Avoid new debt, and build reserves. Then model both lookbacks before you pick a lender.

Where to Start

Lendmire is a mortgage broker that arranges financing through select lenders in its wholesale network. Its consumer mortgage lending covers 16 states. Every file is underwritten individually by the lender, and nothing here is a commitment to lend.

This article is general education, not legal or tax advice. Talk to a qualified professional, such as an attorney or CPA, about your own situation.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage focused on investor financing, arranging DSCR loans in 40 states plus Washington, D.C. — 41 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB Ability-to-Repay and Qualified Mortgage Rule Compliance Guide

2. BiggerPockets, Financing For Self Employed