The Quick Read: Yes, in most cases, a self-employed owner can retire a private note with a new loan that is reviewed on 12 months of bank statements, because the new lender sends the payoff straight to the note holder at closing and the old lien is released through title. The payoff never runs through the owner’s own account, so it is not treated as income.
- Qualification runs on documented deposits under the applicable program, subject to lender guidelines.
- Owner-occupied cash-out tops out around 80% LTV; investment-property cash-out tops out around 75% LTV.
- A payoff-only refinance and a cash-out refinance are treated differently.
- The note itself needs paper: the promissory note, the recorded security instrument and a written payoff statement.
- A rental property may fit a DSCR loan better than a bank statement loan.
The exact query can collide with “how do I pay myself from my business.” This article is about something else: using a new mortgage to retire a seller-carry, family or hard-money-style note secured by real estate.
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What Counts as a Private Note Here?
A private note is a loan from a person or small company instead of a bank. Common versions are a seller-carry note from a past purchase, a family loan secured by the property and a short-term hard-money-style loan. The mechanics of retiring one are the same as any mortgage payoff. The new lender qualifies you, orders the appraisal and sends a payoff to the old holder. Title confirms the old lien is removed.
Most private notes never touch a credit report. So the lender cannot read the balance or payment history off a tradeline. It has to see the paper. That is the first place files stall.
How Does a Bank Statement Loan Qualify a Self-Employed Owner?
A bank statement loan is reviewed on documented income under the applicable program, subject to lender guidelines. Across the wholesale network, the typical file uses 12 months of business or personal statements. The lender averages the deposits. On business accounts it applies an expense factor, since not every dollar deposited is take-home income.
Expense factors are lender-specific. Scotsman Guide cites 50% as one example and notes that a profit-and-loss statement or a tax professional’s expense statement can support a different one. Treat that as a market example, not a promise. Programs differ. A few lenders accept a lower factor with an accountant-prepared ratio. The strictest overlays want cleaner separation between business and personal accounts.
Deposit screening matters here. The lender needs to be satisfied that deposits are your income, not transfers between accounts and not loan proceeds. If you have been feeding the private note with money borrowed elsewhere, expect questions. Commingled personal and business accounts slow the file down. Separate them before you apply.
On leverage, the network’s primary-residence programs reach up to 90% LTV on a purchase or rate-term refinance. A cash-out is different. Owner-occupied cash-out (primary residence or second home) goes up to 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio, depending on loan size and credit. Investment-property cash-out tops out around 75% LTV. Loan sizes run roughly $125,000 to $3,500,000, and reserves commonly sit around 6 months of the housing payment. These are typical ranges, not commitments. Every file is underwritten individually.
Why the Payoff Is Not Income
This is the point most borrowers get tangled on. Two separate files exist inside one loan.
The first file proves you can carry the new loan. That is your statements, your deposit averages and your credit. The second file proves what is owed on the old note. That is the note, the security instrument and the payoff statement. They do not overlap.
The payoff does not appear on your statements, because title wires it to the holder at closing. Nothing is deposited to you. If cash comes back after the payoff, that is cash-out, and it falls under the cash-out LTV ceilings above. If nothing comes back, it is a payoff-only refinance. Lenders generally treat that more gently than cash-out, though exact treatment follows each program sheet.
The Step-by-Step Payoff Flow
1. Classify the property. Owner-occupied or rental. This decides the loan type and the disclosure regime.
2. Choose the income path. Bank statements for an owner-occupied file. Property rent for a non-owner-occupied rental.
3. Assemble the statements. Twelve months, with large or odd deposits explained in writing.
4. Gather the note paper. Promissory note, recorded deed of trust or mortgage, and a written payoff statement from the holder.
5. Order the payoff. The holder issues a payoff figure good through a stated date, with per diem interest if closing slips past it.
6. Close and pay off. Title pays the holder from loan proceeds and records the release.
7. Confirm the release. The satisfaction or release should be recorded after closing. Follow up if it is missing.
The Payoff Package and Post-Closing Documents
| Document | Why the file needs it | Common snag |
|---|---|---|
| Promissory note | Proves terms and balance | Original is lost |
| Deed of trust or mortgage | Shows the lien title must clear | Never recorded |
| Written payoff statement | Fixes the exact amount owed | Expired good-through date |
| Payment history | Shows the note is current | No records kept |
| Lien release | Clears title after payoff | Holder is slow to sign |
On payment history, agency lending offers a useful comparison. The Fannie Mae Selling Guide accepts a mortgage verification, a payment history, 12 months of canceled checks or a year-end statement. That is agency contrast only, not a bank statement or DSCR rule. Still, canceled checks or transfer records are the kind of proof that helps on a private note.
Key Terms Defined
Payoff statement: A written figure from the note holder showing what is owed as of a given date.
Per diem: The daily interest added if closing happens after the payoff figure’s date.
Good-through date: The last day the payoff figure is valid.
Lien release: The recorded document that removes the old note’s claim on the property.
Expense factor: The percentage of business deposits a lender removes to estimate usable income.
Special Cases: Family Notes, Land Contracts and Balloon Deadlines
Family and unrecorded notes. If the note was never recorded, title will typically want a payoff letter and proof of the actual balance before it will insure over the old claim. Write down the balance and have the holder sign. Informal notes are the ones that cause late surprises.
Land contracts. If title never transferred to you, the new loan may be treated as a purchase, not a refinance. That changes seasoning and lien position. A recorded seller-carry note, where title moved at closing, refinances normally.
Thin equity. If the payoff is larger than the lender’s maximum loan on the property, the refinance cannot cover it. Do not count on appreciation to fill the gap. Run the LTV on a current appraisal before you commit.
Balloon pressure. A note with a maturity date forces the timeline. If you cannot pay the balloon, the holder may have remedies, including foreclosure. Start the refinance well before maturity. Options if a refinance falls short include paying cash, selling or negotiating an extension with the holder.
Bank Statement, DSCR or HELOC?
Occupancy decides the path. An owner-occupied file is a consumer mortgage, and TRID disclosures apply. A non-owner-occupied rental, including a short-term rental, is a business-purpose loan and exempt from TRID. The two are not interchangeable. Under federal rules, business-purpose credit is exempt from the consumer-credit framework, and the creditor must determine in each case whether the loan is primarily for that purpose.
| Path | Reviewed on | Best fit | Main risk |
|---|---|---|---|
| Bank statement | Deposit averages | Owner-occupied home | Messy deposits |
| DSCR | Property rent | Non-owner-occupied rental | Rent too thin |
| HELOC | Income and equity | Existing first lien stays | Needs the first lien to remain |
A DSCR loan cannot be used on your own home, since there is no rent to underwrite. On a rental, DSCR qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, so your personal deposits matter less. Select lenders in the network also offer programs below 1.00 coverage, though leverage and terms adjust. For the full picture, see the complete DSCR loans guide.
A related piece covers how a self-employed owner pays off debt with a bank statement HELOC.
A Worked Example
Picture a self-employed contractor who lives in a home bought with a seller-carry note. The note is recorded and has a balloon coming due. The property sits well under the 80% cash-out ceiling on a current appraisal, and the owner wants no cash back. Every detail here is subject to lender guidelines and a complete review of property type, leverage, and credit.
The file runs on 12 months of business statements with an expense factor applied. The owner supplies the note, the deed of trust and a payoff statement. Title wires the payoff and records the release. Because no cash returns to the borrower, the lender may review it as a payoff-only refinance. If the owner also took cash, the 80% owner-occupied cash-out ceiling would apply instead of the purchase ceiling. Final treatment depends on the lender, the credit profile and the appraisal.
Common Mistakes
- Treating the payoff figure as fixed. It expires.
- Ignoring a lost original note until the week before closing.
- Mixing personal and business deposits in one account.
- Funding the old note with borrowed money that shows up as deposits.
- Applying a purchase LTV to a cash-out file.
- Waiting until the balloon is weeks away.
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.
Frequently Asked Questions
Does the payoff show up as income on my bank statements?
No. Title sends the payoff to the note holder at closing, so nothing is deposited to you. The lender reviews your file on your deposit history, and the payoff is documented separately with the note and payoff statement.
Can a bank statement loan retire a note that was never recorded?
Often yes, but the file needs more paper. Title will typically want a payoff letter and proof of the actual balance before clearing the lien. Each lender and title company sets its own requirements.
What LTV applies if I take cash back at payoff?
Owner-occupied cash-out goes up to 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio, depending on loan size and credit. Primary-residence purchase and rate-term loans can reach 90% LTV. These are typical ranges, subject to lender guidelines.
Should I use bank statements or DSCR on a rental?
On a non-owner-occupied rental, DSCR usually fits better because it reads the property’s rent instead of your personal deposits. Bank statements fit owner-occupied homes. If you are weighing both, the DSCR loan guide walks through the property-level math.
What if the note has a balloon due soon?
Start now. Holders may have remedies if the balloon goes unpaid, so a refinance, a cash payoff, a sale or a negotiated extension are the realistic options. A refinance still needs an appraisal, clean statements and the note paperwork.
Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network. Qualification is subject to lender guidelines. This is not a commitment to lend.
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.
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References
1. Scotsman Guide: Rev Up the Engine for Non-QM Lending
2. Fannie Mae Selling Guide: Previous Mortgage Payment History
3. CFPB Regulation Z § 1026.3 commentary
This article is part of Lendmire’s bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get a Mortgage in Colorado When You’re Self-Employed · How to Structure a Bank Statement Loan When Newly Self-Employed · How to Get a Mortgage in Alabama When You’re Self-Employed
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.