The Quick Read: Lenders run two separate tests on this file, and the file must pass both. The first test checks whether the borrower’s deposit-based income supports the new loan. The second checks whether the building is acceptable to a lender that cannot sell the loan to the agencies.
- Income comes from 12 months of personal or business statements, with lender-set expense factors on business accounts.
- Cash-out on a primary residence tops out around 80% LTV with a fixed expense ratio, and 75% with an accountant-prepared ratio.
- Cash-out on a second home runs up to 75% LTV, and on an investment property around 75% LTV.
- Whichever test is tighter, income or building, sets the leverage and the terms.
- Loan sizes run roughly $125,000 to $3,500,000, with reserves commonly near 6 months of the housing payment, subject to lender guidelines.
Most files that stall on this combination do not stall on the LTV math. They stall on the building, usually in the HOA questionnaire. A strong borrower cannot talk a lender past a project problem, and a clean building cannot rescue weak deposits. This piece walks through both gates in order, the variations that exist, and where the general rules break.
What Is This Loan, Exactly?
It is a refinance that pulls equity out of a condo unit, qualified on bank statement income, in a building that fails standard agency project rules. Three pieces stack together: the income method, the cash-out, and the project status.
A non-warrantable condo is a project that fails the eligibility rules for delivery to Fannie Mae and Freddie Mac. Enact Mortgage Insurance lists the usual triggers: high investor or single-entity ownership, commercial space above roughly 35% of the project, litigation naming the HOA or the developer, and thin replacement reserves. The label belongs to the building. It says nothing about the borrower’s credit or the unit’s value.
Bank statement lending is the borrower-side answer. A self-employed owner whose tax returns show heavy write-offs can qualify on documented deposits instead. Lenders in the wholesale network that write these loans are portfolio or non-QM lenders, so the agency tests do not control approval. They are useful only as a diagnostic: they tell you why a building got flagged. Each lender sets its own overlays.
Key Terms Defined
Non-warrantable condo: A condo project that fails agency eligibility rules, so a conventional lender cannot sell the loan on.
Bank statement loan: A mortgage that qualifies the borrower on average deposits in personal or business accounts rather than tax returns or pay stubs.
Expense factor: The percentage a lender subtracts from business deposits to estimate what the borrower actually keeps as income.
Cash-out refinance: A new loan larger than the payoff, with the difference paid to the borrower.
HOA questionnaire: The form the association completes for the lender, covering ownership mix, litigation, reserves, dues, and insurance.
Seasoning: The minimum time a borrower must have owned the property before certain refinance options apply.
How Does the Two-Gate Flow Work?
The deal works through intake, income, project review, appraisal, and final conditions, and it dies at the first gate it fails. Order matters because the cheap checks come first and the slow ones last.
1. Pick the loan path. Bank statement fits when the borrower’s own deposits carry the file. If rent from the unit carries it instead, a DSCR loan is the other path, and that is a different product with a different underwriting basis.
2. Collect statements. Twelve months of personal or business statements is the standard ask across the network.
3. Run the income calculation. Eligible deposits are averaged, and an expense factor is applied to business accounts. That is gate one.
4. Order the project documents. The HOA questionnaire, budget, reserve information, and insurance certificate go to underwriting. That is gate two.
5. Appraise. A full appraisal values the unit. For a rented condo, a rent schedule is typically part of the package.
6. Size the loan. Leverage lands at the stricter of the income result, the project result, the occupancy limit, and the loan-size limit.
7. Clear conditions. Explanation letters, deposit sourcing, and insurance fixes close out the file.
Gate One: How Do Deposits Become Qualifying Income?
Lenders add up eligible deposits, average them across the statement period, subtract an expense factor on business accounts, and compare the result with the new housing obligation plus other debts. The borrower does not set the factor. The lender does, and it varies by program.
The mechanics, in plain steps:
- Strip non-income deposits. Transfers between your own accounts, loan proceeds, refunds, and one-off deposits come out. This is where borrowers lose the most income without realizing it.
- Average the rest. The eligible total is divided by the number of months in the statement window.
- Apply the factor. On a business account, the lender multiplies by one minus the expense factor, then by the borrower’s ownership share. Docsumo’s explainer lays out the same formula. Some programs accept an accountant-prepared expense statement in place of the flat factor. Per lender program requirements, that option is not universal, and on cash-out the accountant-prepared route sits at the lower leverage ceiling, not the higher one.
- Test the payment. Qualifying income is measured against the proposed payment, the condo’s HOA dues, and other monthly obligations.
That last line is where gate one touches gate two. HOA dues sit inside the housing payment. A building with high dues, or a pending special assessment, drags on the income test even when the deposits look strong.
The program reviews the file on documented income under the applicable program, subject to lender guidelines. It is not a no-documentation loan. The documentation is different, and it is just as full.
Gate Two: What Does the Lender Check in the Building?
The lender reviews ownership concentration, commercial space, litigation, reserves, delinquent dues, and insurance. Each issue hits a different part of the file, which is why a list of reasons is less useful than a map of consequences.
| Project issue | What the lender checks | What it usually affects |
|---|---|---|
| Investor or single-entity concentration | Share of units held by one owner or by renters | Lender pool, leverage |
| Commercial or mixed-use space | Share of the building’s footprint | Eligibility, pricing |
| Litigation | Who is named, and whether it is structural | Eligibility outright |
| Thin reserves | Budget line for replacement reserves | Leverage, reserves |
| Delinquent dues | Share of owners behind on dues | Eligibility, insurance risk |
| Special assessment | Amount, timing, who pays | Payment test, leverage |
Litigation is the hardest to overcome, and structural or safety litigation is the hardest of that group. A lender that will take an investor-concentration flag may still decline a building with a pending structural suit. Reserve and assessment problems often have a path: a lender may price them in, lower leverage, or want to see the assessment paid first.
Several lenders in the network will allow a limited number of non-warrantable characteristics on a single project, but the count and the limits are lender-specific. One flag is a different file from three. Condotels and buildings heavy with short-term rentals usually sit in a tighter bucket than an ordinary non-warrantable condo, and program sheets treat them separately. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income.
The investor-concentration problem often hides in the questionnaire. Investors who skip reading it before they apply find out late. Read it first.
Where Do the Two Gates Collide?
They collide in the payment test and in the sizing. Strong income cannot override a project problem, and a clean project cannot cover thin deposits. Each gate can lower leverage on its own, and the file takes the lower number.
Three collision points show up repeatedly:
- HOA dues in the payment. Dues feed the housing obligation that income must cover. A building with rising dues and a looming assessment squeezes income from the other side.
- Assessments and reserves. A building that is short on reserves is likelier to levy a special assessment. That hits the payment test and the project review at once.
- Insurance. The building’s master policy and your unit coverage both get reviewed. Gaps in the certificate are a common late condition.
Commingled accounts are a separate collision. When personal and business activity mix in one account, the lender may treat it as a business account and apply the expense factor to all of it. Mixed activity does not automatically stop a loan. It creates more questions and more explanation letters.
What Changes With Cash-Out?
Cash-out tightens leverage and adds scrutiny of the building, because the lender is advancing more against a unit it may have a hard time reselling. The ceiling depends on occupancy, and it is never the purchase ceiling.
Across the wholesale network, these are the typical cash-out limits, subject to lender guidelines, loan size, and credit:
| Occupancy | Typical cash-out LTV ceiling |
|---|---|
| Primary residence, fixed expense ratio | Up to 80% |
| Primary residence, accountant-prepared ratio | Up to 75% |
| Second home | Up to 75% |
| Investment property | Around 75% |
The 90% figure some borrowers have heard applies to primary-residence purchase and rate-term transactions on bank statement documentation. It does not apply to cash-out. An asset-depletion alternative, which qualifies from liquid assets instead of deposits, runs to about 80% LTV on a primary residence. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Four other cash-out points matter on a non-warrantable unit:
- Reserves. Programs commonly ask for around 6 months of the housing payment, and cash-out proceeds generally cannot be counted toward them. Reserves have to come from other documented assets.
- Seasoning. A recent purchase may not be eligible for cash-out at all until the ownership period is met. The settlement statement documents it.
- Valuation. Value comes from the full appraisal, and appraisers on non-warrantable buildings sometimes struggle to find close comps. A well-supported appraisal reconsideration request, with recent in-building sales, is routine.
- Exit risk. Non-warrantable status can narrow the buyer pool, because a retail buyer has a harder time financing the unit. Enact makes the same point about resale discounts. Underwrite the exit, not just the cash-out.
Status can also change. A building that fails today can drift back toward warrantable as units turn over, and a building that passes today can fail after a lawsuit is filed. Treat the label as a moving target.
Occupancy Decides the Disclosure Regime
This part is short, because it matters less to qualification than to paperwork. An owner-occupied cash-out, on a primary residence or second home, is a consumer mortgage and carries consumer disclosure rules. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and generally exempt from those rules.
The CFPB’s ability-to-repay rule requires a reasonable, good-faith determination of repayment ability on covered consumer loans. The OCC’s TILA handbook confirms that credit extended for business or commercial purposes is exempt. Whether a given loan is exempt is the lender’s compliance call, not the borrower’s. And the exemption changes the paperwork, not the credit judgment. The lender still underwrites repayment capacity and project risk on every file.
A Worked Example
Picture a self-employed owner of a condo unit who wants cash out against a unit used as a primary residence. The numbers here are modeled assumptions, not program terms and not market data.
1. Deposits. The borrower’s business account shows twelve months of deposits. After stripping transfers and a loan payoff, the eligible total shrinks noticeably. That cut alone changes the file.
2. Expense factor. The lender applies its factor to the averaged business deposits. Qualifying income lands well under gross deposits.
3. Payment test. The new payment plus HOA dues plus other debts is measured against that qualifying income. Suppose the file lands comfortably inside the lender’s limit. Gate one passes.
4. Project review. The questionnaire shows moderate investor concentration and thin reserves, with no litigation. The lender allows it, but at reduced leverage.
5. Sizing. The primary-residence cash-out ceiling is up to 80% LTV on a fixed expense ratio. The project flags pull the usable figure below that ceiling. The tighter limit wins. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The outcome: the borrower passes both gates and receives less cash than the ceiling alone would suggest. Had the questionnaire shown structural litigation, the file would have ended at gate two, and strong income would not have changed that. Final terms depend on the borrower, the property, the lender, and credit approval.
What Documents Do You Need for Both Gates?
Order the HOA documents first, because the building is out of the borrower’s hands and tends to be slow. The borrower’s own documents are in the borrower’s control.
| Borrower documents | HOA and project documents |
|---|---|
| 12 months of bank statements | Completed HOA questionnaire |
| Entity documents, if business accounts | Current budget and reserve information |
| Explanations for large or odd deposits | Master insurance certificate |
| Accountant expense statement, if the program allows | Litigation disclosure, if any |
| Evidence of reserves, outside cash-out proceeds | Special assessment details and dues status |
Cleaner documentation gives the lender fewer preventable gaps to review. It does not guarantee approval.
Bank Statement, DSCR, or Asset-Based?
Pick the path that matches which part of the picture is strongest. Bank statement fits when your income carries the file. A DSCR loan fits an investment condo when rent comfortably covers the payment. Asset depletion fits when liquid assets are the strongest story.
| Path | Reviewed on | Fits best when |
|---|---|---|
| Bank statement | Deposit-based income | Self-employed, rent is thin |
| DSCR | Property rent vs. payment | Rent covers the payment |
| Asset depletion | Liquid assets | Assets strong, income lumpy |
Some DSCR lenders treat warrantable and non-warrantable condo investment properties much the same in eligibility, so on a rented condo the DSCR route can be simpler. The complete DSCR loans guide covers how that product works. For a related look at the project side, Lendmire’s piece Best Super Jumbo Bank Statement Cash-Out Refinance Program on a Non-Warrantable Condo covers the larger-balance end.
Where Files Stall, and What to Do
Most stalls trace to a short list of causes. Knowing them lets you fix the file before it is submitted.
- Reading the label as a verdict. Non-warrantable describes agency eligibility, not a bad building. Portfolio financing exists for these units.
- Assuming all deposits count. Transfers and loan proceeds are excluded, and business deposits take the factor.
- Assuming you choose the expense ratio. The lender sets it.
- Applying agency numbers to a non-QM file. The 35% commercial and reserve tests are diagnostics. Each non-QM lender sets its own overlays.
- Confusing investor-owned units with single-entity ownership. They are different measures, and lenders treat them differently.
- Loan size too small. Very small balances are hard to place. This program starts around $125,000.
When a file fails one gate, there are four usual moves. Switch income paths, for example from bank statement to DSCR on a rented unit. Move to a different lender in the wholesale network whose overlays fit the building. Wait out a pending assessment or a fixable reserve shortfall. Or resubmit after the association corrects the questionnaire. A broker that shops several wholesale lenders can match the specific building flags to the lender that tolerates them. The program that fits depends on your documentation, the property, your credit, and your leverage need.
If you are self-employed and want to see how the numbers work, Lendmire can help you compare bank statement loan options based on your deposits, the property, credit profile, leverage, and your goals. Reach the team at 828-256-2183 or request a quote. Consumer mortgage availability on this program covers 16 states, and Lendmire arranges financing through select wholesale lenders; it is not a commitment to lend.
Frequently Asked Questions
Can a non-warrantable condo be refinanced with cash out?
Yes, through non-QM or portfolio lenders, because the loan cannot be sold to the agencies. The lender still reviews the building on a refinance, not only the borrower. Leverage depends on occupancy, with cash-out ceilings of up to 80% LTV on a primary residence, up to 75% on a second home, and around 75% on an investment property, subject to lender guidelines.
Does a bank statement loan mean no income documentation?
No. It swaps tax returns and pay stubs for 12 months of statements, and the lender analyzes deposits, strips non-income items, and applies an expense factor on business accounts. The loan is reviewed on documented income under the applicable program.
Can I choose my own expense ratio?
No. The lender sets the factor. Some programs accept an accountant-prepared expense statement in its place, but that is program-dependent, and on a primary residence cash-out it carries the lower 75% ceiling rather than the 80% figure tied to a fixed ratio.
Which is harder to pass, the income test or the building review?
It depends on the file. Income problems are usually fixable with cleaner deposits or a different program. Building problems like structural litigation can end a file outright, so the project review is often the less forgiving gate.
Should I use DSCR instead on a rented condo?
Possibly. If rent comfortably covers the payment, a DSCR loan skips the personal income analysis and qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Bank statement fits better when your income, not the rent, is the stronger story.
For the mechanics of pulling equity out of a rental property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges bank statement, P&L-only, 1099-only and asset-based home financing in 16 states through wholesale lenders, on primary residences, second homes and investment properties. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Enact MI – What makes a condominium non-warrantable
2. Docsumo – Bank statement income verification
3. CFPB – Ability to repay and qualified mortgages
4. OCC – TILA Comptroller’s Handbook
This article is part of Lendmire’s bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get Approved for a Bank Statement Cash-Out Refinance When the Appraisal Is Low? · Does a Bank Statement Cash-Out Refinance Make Sense to Invest in the Stock Market? · How Lenders Underwrite a Bank Statement Cash-Out Refinance With a 50% Expense Ratio
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.