The Quick Read: Lenders turn twelve months of deposits into qualifying income, size the new loan against appraised value, add any financed closing costs to that loan, and then test whether the borrower’s income supports the larger balance. Financed costs use up leverage room, so they reduce the cash that reaches the borrower.
- Income comes from averaged, cleaned deposits, often reduced by a lender-set expense factor.
- Equity sets one ceiling on the loan, and income sets a second. The tighter one wins.
- Rolled-in costs raise the balance and lower net cash, dollar for dollar.
- Owner-occupied files follow consumer disclosure rules. Rental files are business-purpose.
- Terms vary by lender, and each file is underwritten individually.
A self-employed owner often has strong cash flow and a tax return that understates it. A bank statement cash-out refinance exists for that borrower. It is reviewed on documented income under the applicable program, subject to lender guidelines. This guide walks through how the underwriting works when closing costs are folded into the new loan.
What Is a Bank Statement Cash-Out Refinance?
A bank statement cash-out refinance replaces your current mortgage with a larger one and pays you the difference. Income is documented with bank statements instead of tax returns. The statement approach is a documentation method, not a separate kind of loan.
Across the wholesale network Lendmire works with, programs typically ask for 12 months of business or personal statements. Loan sizes generally run from $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment. Lendmire is a mortgage broker. It places these files with select lenders rather than lending directly, and the lenders review each file on its own.
Lendmire’s complete DSCR loans guide covers the investor-focused alternative.
Key Terms Defined
- Bank statement loan: a mortgage that documents income from deposit history instead of tax returns.
- Expense factor: the share of business deposits a lender treats as operating costs, not income.
- Qualifying income: the monthly figure left after deposits are cleaned, averaged and reduced.
- Financed closing costs: fees added to the new loan balance instead of paid in cash.
- LTV: the loan balance divided by appraised value.
- DTI: monthly debts, including the new housing payment, divided by qualifying income.
- Prepaids and escrows: up-front taxes, insurance and interest, which differ from lender fees.
How Do Lenders Underwrite It, Step by Step?
Underwriting follows a fixed order: income, equity ceiling, loan size with financed costs, payment test, then reserves and credit. Getting the order right matters because rolled-in costs touch more than one step.
1. Choose the statement lane. Business statements get an expense factor. Personal statements are often counted without one. Some lenders let the borrower pick the lane that produces the better income.
2. Clean the deposits. Transfers between your own accounts and loan proceeds come out. Large unexplained deposits get sourced or excluded.
3. Average and apply the factor. Eligible deposits are divided by the number of months, then reduced by the expense factor.
4. Size the loan against value. An appraisal sets value, and the program’s cash-out LTV cap sets the maximum balance.
5. Add financed costs. Rolled-in fees join the balance and count against that same cap.
6. Test the payment. On owner-occupied files, the new payment, taxes and insurance, plus other debts, are measured against qualifying income.
7. Review reserves, credit and the property. These are set by program, and seasoning is lender policy.
The federal repayment-capacity rule requires lenders on consumer-purpose loans to make a good-faith determination that the borrower can repay. The federal consumer-finance regulator’s compliance guide lists eight factors a lender must consider. A non-QM loan gets no presumption of compliance, so the lender supports its own analysis. That is why a bank statement loan is full underwriting, not a shortcut.
How Do Deposits Become Qualifying Income?
Qualifying monthly income equals eligible deposits divided by months, multiplied by one minus the expense factor. There is no single national factor. Each lender sets its own, and a CPA-prepared profit-and-loss statement may support a lower one where the lender allows it.
| Statement type | Treatment of deposits | Watch for |
|---|---|---|
| Business | Expense factor applied | Commingled accounts |
| Personal | Often counted directly | Non-income transfers |
| CPA-prepared P&L | May support a lower factor | Lender acceptance varies |
Personal statements can produce higher income because no factor is applied. They also draw closer scrutiny when business and personal money mix. A new business with a short deposit history gets the same extra review.
How Do Rolled-In Closing Costs Change the Loan?
Rolling costs in lowers the cash you bring to closing, but it raises the loan balance, raises LTV, and shrinks your net cash. Zillow Learn describes refinance costs as a few percent of the loan amount, which is why the effect is not small.
| Handling | Loan amount | LTV | Net cash |
|---|---|---|---|
| Pay at closing | Unchanged | Unchanged | Full proceeds |
| Deduct from proceeds | Unchanged | Unchanged | Reduced |
| Roll into the loan | Higher | Higher | Reduced, plus interest on costs over time |
Agency loans show the same idea. Freddie Mac’s no-cash-out refinance page confirms that closing costs and prepaids can be rolled into a new loan there. That is only a contrast. Non-QM programs set their own definitions of what can be financed.
Appraisal fees are often paid up front even when other costs roll in. Prepaids and escrows are not fees, and program treatment of them varies.
What Is the Math, Start to Finish?
The equity test is simple: payoff plus financed costs plus desired cash must stay at or below value times the LTV cap. Any amount over the cap has to come out of your cash, your costs, or your request.
Picture a self-employed owner of a primary residence. The program allows up to 80% LTV on an owner-occupied cash-out with a fixed expense ratio. Assume the home appraises at $1,000,000, the existing payoff is a little over half of value, and the owner wants meaningful cash. At 80% the ceiling is 80% of value. Every dollar of financed cost sits inside that ceiling, so the cash-out request has to shrink by the same amount. The figures here are modeled assumptions, not market data. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Now the income side. Deposits are averaged and reduced by the factor. The new payment, including taxes and insurance, is then tested against that income alongside other debts. If the payment fails, the loan shrinks again, even when equity would have allowed more.
What Are the Two Ceilings, Equity and Income?
Equity caps the loan at appraised value times the program LTV. Income caps it at whatever payment your qualifying income can carry. The lower of the two controls, and financed costs push on both at once.
- Equity ceiling: primary residence cash-out runs up to 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio. Second homes run up to 75% LTV on a cash-out. Investment property cash-out tops out around 75% LTV.
- Income ceiling: a bigger balance means a bigger payment. A borrower with equity to spare can still hit the income wall.
An asset-depletion alternative, which qualifies from liquid assets, reaches about 80% LTV on a primary residence.
What Do Underwriters Flag?
Underwriters flag unusual deposits, thin reserves, appraisal shortfalls, and mixed business and personal accounts. Each one slows or shrinks the loan.
- Large or irregular deposits that cannot be sourced are excluded from income.
- Reserves around six months of the housing payment are common.
- A low appraisal cuts the ceiling directly, and financed costs do not shrink to compensate.
- Occupancy decides the paperwork. Owner-occupied files, including primary residences and second homes, are consumer mortgages, so TRID disclosures apply. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID.
What If the Numbers Do Not Fit?
When the math fails, there are four usual fixes: take less cash, pay costs in cash, wait for more equity, or reduce other debts.
| Problem | Typical fix |
|---|---|
| Payoff, costs and cash exceed the cap | Smaller cash-out or pay costs in cash |
| Appraisal comes in low | Reduce the request or wait |
| Payment fails the income test | Pay down debt or request less |
| Deposits cleaned down too far | Try the other statement lane or a CPA P&L |
Run a net-proceeds check before choosing a structure. Start with payoff, subtract costs and any reserves, and look at the real check you would receive. Then divide total closing costs by any monthly savings to find a break-even point. If you expect to sell or refinance before then, rolling costs in may not pay off.
When Is This the Wrong Tool?
Bank statement cash-out suits an owner-occupant or a self-employed borrower whose deposits show more than the tax return does. It is a poor fit for scaling a rental portfolio. Each new loan stacks on the same personal income, so DTI becomes the bottleneck.
DSCR financing separates the property from the person. It qualifies primarily on property-level rental income covering the payment, subject to lender guidelines, and it commonly fits LLC vesting, subject to program terms. A borrower with heavy write-offs and one residence may prefer the bank statement lane.
Tax treatment varies; consult a qualified professional.
Frequently Asked Questions
Can closing costs be rolled into a bank statement cash-out refinance?
Often yes, within the program’s LTV cap. Financed costs join the loan balance and count against the ceiling. They reduce the cash you receive, and you pay interest on them over the life of the loan. Lender programs differ on what can be financed.
Is there one standard expense factor?
No. Each lender sets its own, and no federal formula exists. A CPA-prepared profit-and-loss statement may support a lower factor where the lender allows it. Personal-statement programs often skip the factor entirely.
How much can I borrow on a cash-out refinance?
It depends on the property and occupancy. A primary residence can go up to 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio. A second home goes up to 75% LTV. Income and DTI can lower the figure further. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Does a bank statement loan mean no underwriting?
No. Lenders analyze deposits, debts, credit, reserves and the property, and ability-to-repay factors still apply on consumer-purpose files. The loan is reviewed on documented income under the applicable program, subject to lender guidelines.
Should an investor use bank statements or DSCR for a rental?
It depends on how many properties you hold. A single rental owned personally can work either way. A growing portfolio, entity title, or heavy personal debt usually points to DSCR, where the property’s rent carries the file.
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. You can request a quote or call 828-256-2183. Programs are subject to lender guidelines. This is not a commitment to lend.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
For current guidelines and terms, see Lendmire’s bank statement loan programs page.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. Bank statement, P&L-only, 1099-only and asset-based mortgages are arranged through wholesale lending partners for borrowers whose tax returns understate their income, and each application is reviewed individually by the lender. 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. CFPB – ATR/QM Small Entity Compliance Guide
2. Zillow Learn – Cash-Out Refinance
3. Freddie Mac – No Cash-out Refinance Mortgages
This article is part of Lendmire’s bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.