The Quick Read: You qualify by documenting twelve months of business or personal bank deposits instead of traditional personal-income documentation, and the lender lets you borrow against home equity up to an LTV cap that depends on whether the property is your Texas homestead, a second home, or a rental. The loan is reviewed on documented income under the applicable program, subject to lender guidelines.
- Income: Lenders average your deposits over the statement window. On business accounts they then apply an expense factor, because deposits are revenue and not profit.
- Leverage: Owner-occupied cash-out typically tops out at 80% LTV, and investment-property cash-out typically tops out around 75% LTV, subject to loan size and credit.
- Texas overlay: Your own homestead falls under Texas equity-lending rules. A rental falls outside them.
- Size and cushion: Loan amounts generally run from $125,000 to $3,500,000, with reserves commonly around six months of the housing payment.
- Contractor risk: Pass-through money for subcontractors and materials is the deposit type that most often shrinks or sinks a file.
Why Contractor Tax Returns and Bank Deposits Tell Different Stories
Contractors deduct trucks, tools, insurance, materials and subcontractor labor. Those write-offs are legitimate, and they push taxable income down. Meanwhile the business account may show steady money coming in from jobs.
A conventional file reads the tax return and sees the low number. A bank statement file reads the deposits and builds the income from there. That is the whole reason this product exists.
The method suits Texas contractors for a practical reason. Many are sole proprietors or small LLC owners with lumpy, job-based income. A 12-month window smooths out a slow winter and a busy spring, and the lender sees the pattern instead of a single tax-year snapshot.
Qualifying this way does not mean skipping verification. Lenders still verify income with third-party records, and bank statements are exactly that. You provide every page of every statement, and the underwriter reads all of them.
Key Terms Defined
Bank statement loan: A mortgage that is reviewed against deposit history instead of traditional personal-income documentation or W-2s.
Non-QM: Short for non-qualified mortgage. It is a loan that does not fit the standard documentation box used for conventional files, but it is still underwritten for your ability to repay.
Expense factor: The percentage of business deposits the lender treats as operating costs. The remainder becomes your qualifying income.
Cash-out refinance: A new loan that replaces your existing mortgage and pays you the difference in cash.
LTV (loan-to-value): The loan amount divided by the property’s appraised value.
Reserves: Liquid savings you keep after closing, usually counted in months of the housing payment.
Homestead: The home you live in as your primary residence, which Texas law protects with special lien rules.
DTI (debt-to-income): Your monthly debts divided by your qualifying monthly income.
How Underwriting Treats Your Statements, Step by Step
An underwriter turns deposits into income through a fixed sequence. Knowing the sequence lets you prepare each stage before you apply.
1. Pick the statement type and window. You choose personal statements, business statements, or both. Market guides describe windows of 12 to 24 months, according to HousingWire’s non-QM guide. The programs Lendmire places files with in this lane use 12 months of statements.
2. Screen the deposits. The underwriter keeps recurring, earned revenue. Transfers between your own accounts, loan proceeds and refunds come out. Large deposits without an explanation get questioned.
3. Apply the expense factor. On business accounts, the lender assigns a factor based on the type of business, staffing and use of subcontractors. You do not pick it. Some programs accept a profit-and-loss statement prepared by an accountant in place of a flat factor, and that route can help a contractor with genuinely lean costs.
4. Apply your ownership share. If you own part of the business, you get credit only for your portion of the deposits.
5. Average across the window. The result is your monthly qualifying income.
6. Test the rest of the file. The lender then checks credit, DTI, reserves and the property itself.
Two outcomes drive most files. The first is how cleanly your business money is separated from personal money. The second is whether deposits hold steady or trend downward across the window.
Which Contractor Deposits Count?
Contractors face more deposit scrutiny than most self-employed borrowers, because a large share of what hits the account is not yours to keep. A draw that funds a framing crew or a lumber order passes through your account on its way to someone else.
| Deposit type | Usually counted? | How to document |
|---|---|---|
| Customer progress payments | Usually yes | Contracts, draw schedules, invoices |
| Final job payments | Usually yes | Invoices matching each deposit |
| Subcontractor pass-through draws | Often reduced or questioned | Job ledger showing payouts |
| Transfers between your accounts | Excluded | Both sides of the transfer |
| Loan proceeds and refunds | Excluded | Source record or letter |
| One large deposit from a single job | Questioned | Written explanation plus paper trail |
The expense factor exists partly to handle pass-through money. Still, a file with heavy pass-through deposits and a thin job ledger invites a lower income calculation.
Mixed accounts cause a second problem. If personal paychecks, owner draws booked as revenue and customer payments all land in one account, the underwriter cannot tell what is business income. Many contractors fix this by running business deposits through a dedicated account for several months before applying.
Growth spending also matters. Heavy reinvestment in equipment or crews means the expense factor leaves less income standing. That is the mechanical result of how the factor works.
How Much Can You Actually Take Out?
Your cash-out amount is the lower of two limits: what your income supports and what your equity supports. Whichever is smaller controls.
Start with equity, which is the simpler limit. Across the wholesale network Lendmire works with, owner-occupied cash-out on a primary residence or second home typically reaches up to 80% LTV with a fixed expense ratio. The ceiling is typically 75% LTV when the file uses an accountant-prepared expense ratio, depending on loan size and credit. Investment-property cash-out typically tops out around 75% LTV.
Do not confuse those figures with purchase leverage. Primary-residence purchase and rate-and-term loans can reach up to 90% LTV through select lenders, and an asset-depletion alternative on a primary residence runs to about 80% LTV. Neither number applies to a cash-out. Investment-property purchase leverage on bank statement documentation varies by lender.
Here is a percentage-only illustration. Say you owe 55% of the home’s value, and the program caps an owner-occupied cash-out at 80% LTV. That leaves room equal to 25% of the home’s value, before closing costs. If your averaged income, after the expense factor and your other debts, supports a smaller loan than that, the income limit wins. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The reverse also happens. A contractor with strong deposits but a high existing balance can hit the equity wall first.
Reserves sit on top of both limits. Commonly the lender wants about six months of the housing payment left in liquid funds after closing. All of it is subject to lender guidelines and credit approval.
Homestead or Rental? Where Texas Law Changes the Picture
The income method is identical on both property types. The legal wrapper is not. A cash-out on your own Texas residence lands in one legal regime, and a cash-out on a non-homestead rental lands in another.
The Texas Constitution protects the homestead from forced sale and limits which debts can be secured by it. The Texas A&M Real Estate Research Center explains that the rules for home equity loans sit in Article XVI, Section 50(a)(6). Its summary of the main requirements:
- Principal plus all other debt secured by the home cannot exceed 80% of fair market value when credit is extended.
- The loan cannot carry a prepayment penalty.
- The loan cannot be secured by anything beyond the homestead.
- These loans cannot be taken on a second home or a rental property.
The same constitutional section adds consumer notice requirements, a mandatory waiting period before closing, and a limit on having more than one such loan at a time. Your closing team handles the paperwork. Your job is to know that a homestead cash-out has structural steps a rental cash-out does not.
Occupancy also decides the disclosure regime. An owner-occupied file, meaning a primary residence or second home, is a consumer mortgage, and the standard consumer disclosure rules known as TRID apply. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is a business-purpose loan and is exempt from TRID. Which regime applies follows the property, not the income method.
Second homes are a separate question. They are not homestead, so the equity-loan rules above do not apply to them.
Federal ability-to-repay rules also leave room for this product. The CFPB’s compliance guide lists self-employment among the kinds of employment a creditor may consider. Lenders still have to confirm you can repay, and your statements are the evidence.
Cash-Out Refinance, Bank Statement HELOC or DSCR Cash-Out?
A contractor sitting on equity usually has three structures to compare. The right one depends on the property, the lien position and which documents make your strongest case.
A DSCR loan (debt service coverage ratio) is an investor loan that qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. It exists only for rentals. Lendmire’s complete DSCR loans guide covers it in full.
| Factor | Cash-out refinance | Bank statement HELOC | DSCR cash-out |
|---|---|---|---|
| Reviewed on | Your deposits | Your deposits | Property rent |
| Lien structure | Replaces first lien | Adds a second lien | Replaces first lien |
| Existing first mortgage | Paid off | Stays in place | Paid off |
| Best fit | Large lump sum | Flexible draws | Rental you hold |
| Texas caution | Homestead rules | Homestead rules | Rentals only |
Choose bank statement when your deposits make the stronger case than the rent does. Choose DSCR when the rental’s own income carries the loan and you want the file judged on the property. A contractor with a rental often has both options, and a broker who sees many lenders can run each against the same file.
Lendmire’s piece Can a Texas Homestead Hold a Bank Statement HELOC and a Cash-Out Lien? explains how the homestead rules interact with a second lien.
Where the Standard Playbook Breaks
Several situations bend the normal process. Contractors run into most of them.
A rental that still carries a homestead designation. If a property is a rental in fact but is still recorded as a homestead, the file has a title question. That one belongs with Texas title counsel before the lender gets involved.
An existing Texas equity loan. A refinance of a loan that was originally a Texas equity loan can stay in that category even without cash out. Confirm the status with your title company before choosing a structure.
A loss year on the tax return. Deposit-based qualification reduces the weight of a tax-return loss, but it does not erase it. Underwriters may ask why the business shows a loss while deposits look healthy. A short written explanation usually helps.
Entity ownership. Who owns the account matters. Statements in a LLC’s name, a sole proprietorship’s name, or your personal name are treated differently across lenders, and handling varies by program. Whether a loan to an LLC-titled borrower is available is subject to lender program eligibility.
A recent business start. Many programs want a history of self-employment. A contractor who left a W-2 job recently may need to show prior work in the same trade.
Seasonal swings. A 12-month average absorbs seasonality, but a window that ends on a steep decline can reduce the average. If your slow season falls at the end of the window, the timing of your application matters.
Different trades. A residential remodeler, a commercial subcontractor and an oilfield trades contractor have different cost structures. Expect the lender’s expense factor to follow the business type.
Why Contractor Files Get Declined or Repriced
Most problem files fail for ordinary reasons. These are the most common:
- Large deposits with no source or explanation.
- Commingled personal and business money in one account.
- A downward deposit trend across the window.
- Pass-through draws that inflate revenue without matching job records.
- A business too new to show a stable pattern.
- Existing debts that push DTI above the program’s limit.
A repriced file often has the same causes in milder form. The lender approves the loan, but with a lower LTV or higher reserve requirement. The fix is usually preparation, not persuasion.
Document Checklist and a Prep Plan
Gather these before you talk to a lender:
- Every page of each bank statement in the window, business or personal.
- Proof of business existence, such as a license or registration.
- A job ledger or invoice summary that ties deposits to jobs.
- A written explanation for any large or unusual deposit.
- An accountant-prepared expense ratio, if your costs run lean.
- Homeowner’s insurance and a current mortgage statement on the property.
- Government ID and a list of your other debts.
In the months before you apply, a few habits make a measurable difference. Run business income through a dedicated account. Keep deposits consistent and avoid moving large sums between accounts. Pay down revolving debt so your DTI stays workable. Coordinate with your accountant about the expense ratio before the lender asks.
Plenty of contractors use cash-out proceeds for business purposes. 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.
Non-QM is a large and established segment. HousingWire’s guide reports that bank statement loans made up about 34% of non-QM volume, so lenders in this space see contractor files regularly.
Frequently Asked Questions
Can I use a bank statement cash-out loan on a rental I own?
Yes, on many files. The loan is reviewed on documented income under the applicable program, subject to lender guidelines, and a non-owner-occupied rental is typically capped around 75% LTV on a cash-out. Because the property is a rental, the homestead equity rules do not apply, and the loan is business-purpose. Some contractors with strong rent compare it against a DSCR cash-out on the same property.
Should I submit business or personal statements?
It depends on where your customers pay you. If most income lands in a business account, business statements with an expense factor are the natural route. If you deposit everything personally, personal statements may work with no expense factor, though the underwriter will still screen for transfers and non-income deposits. Mixed accounts are the weak spot, so the cleaner option is usually stronger.
How much cash can I actually pull out?
The lower of the equity limit and the income limit. On an owner-occupied cash-out the equity limit is typically up to 80% LTV, and on an investment property it is typically around 75% LTV. On a Texas homestead, the state’s own 80% combined cap sits alongside the program cap. Your averaged income, expense factor and other debts set the second limit.
Can I spend the proceeds on my contracting business?
Many borrowers do, and lenders ask about the use of funds at application. A cash-out secured by your own home is still a consumer mortgage, even when the money goes to the business. A cash-out on a non-owner-occupied rental is business-purpose. Which one you have changes the paperwork you sign.
Is bank statement or DSCR better for a contractor with a rental?
Neither wins automatically. Bank statement judges your deposits, and DSCR judges the property’s rent against its own payment. A contractor with steady deposits and a thin-margin rental often does better on bank statement, while one with a strongly performing rental and messy accounts often does better on DSCR. Where programs below 1.00 coverage are available, they exist through select lenders in the network, with adjusted LTV and terms.
Next Step
Owner-occupied bank statement files run through Lendmire’s consumer mortgage licensing, which covers 16 states, so availability depends on the property’s state. Call 828-256-2183 or request a quote to start.
A contractor’s deposits and the property’s legal status decide almost everything, so cleaning up the first and confirming the second is the most useful work you can do before any lender looks at the file.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
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. HousingWire — Non-QM loans guide
2. Texas A&M Real Estate Research Center — What to Know About Home Equity Loans in Texas
3. CFPB — Ability-to-Repay/Qualified Mortgage small entity compliance guide
This article is part of Lendmire’s bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Bank Statement HELOC Deposit Rules for Uneven Monthly Income · Bank Statement HELOC History Requirements for Same-Field Owners · Bank vs Broker Bank Statement HELOC for a Self-Employed Homeowner
Guides: Bank Statement Loans in Texas
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
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- 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.