How a Bank Statement Loan Works for 1099 Contractors and Commission Earners

The Quick Read: A bank statement loan is reviewed for a self-employed borrower on documented income under the applicable program, subject to lender guidelines. The lender averages twelve months of deposits, removes anything that is not income, applies an expense factor to business deposits, and tests the result against the borrower’s debts. That suits contractors and commission earners whose traditional personal-income documentation shows far less than their real cash flow.

• Documentation: Twelve months of personal or business bank statements, with income built from deposit averages.
• Leverage: Up to 90% LTV on a primary-residence purchase or rate-term refinance. Owner-occupied cash-out tops out at 80%, and investment-property cash-out at around 75%.
• Size and cushion: Loan amounts run roughly $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment.
• Rental purchases: The property’s own rent often matters more than your deposits, which is where a DSCR loan can fit better.

Your tax return and your bank account tell two different stories, and you probably know it already. A 1099 contractor or a commission earner writes off real business costs. The return shrinks, but the deposits do not. This article walks through how a lender turns those deposits into qualifying income, where the method bends, and how to decide whether it is the right tool for your next purchase.

Why Does This Loan Fit 1099 and Commission Income?

A conventional lender starts with your tax return. Legitimate deductions lower your taxable income, so the return can understate what actually flows through your accounts. A bank statement loan starts with the deposits instead.

It is a non-QM loan. Non-QM means the income is documented in a way that falls outside the standard W-2 and tax-return method. It does not mean subprime, and it does not mean undocumented. The lender still checks credit, reserves, the appraisal, and your ability to repay. Only the proof of income changes.

Two kinds of earners use these loans most often:

• 1099 contractors get paid by clients who file a 1099 form on their work. Payments usually land in one account, and the contractor carries the business costs.
• Commission earners get paid per sale, deal, or policy. Payouts can be large, late, and uneven from one month to the next.

Both groups share one problem. Their reported income is lower than their cash flow, and it moves around. Lender-side programs exist because that income is real and hard to prove the standard way.

How Does Underwriting Turn Deposits Into Income?

Underwriters follow the same basic sequence on most files. The sequence is a pattern across programs, not one universal formula. Each lender sets its own details.

1. Choose the window and account type. Most programs in Lendmire’s wholesale network use twelve months of consecutive statements, business or personal. Scotsman Guide’s non-QM explainer describes market windows of 12 to 24 months, so programs outside the network may ask for more.

2. Strip out ineligible deposits. Transfers between your own accounts, loan proceeds, gifts, refunds, and one-time windfalls come out. So do deposits you cannot explain.

3. Apply an expense factor to business deposits. Business deposits count as gross revenue, so the underwriter assumes part of it went to overhead. The same Scotsman Guide piece uses 50% as its example. The actual factor is set by the lender and program, and you do not pick it.

4. Average over the window. The eligible, post-expense amount is divided by the number of months. That figure is your qualifying monthly income.

5. Run the debt test. Your qualifying income goes against your housing payment and other monthly debts. Your debts still count, which is the main difference from a DSCR loan.

6. Underwrite the rest of the file. Credit, reserves, appraisal, and occupancy all get reviewed as they would on any mortgage.

Notice what the process does not do. It does not accept a stack of statements and a handshake. The lender confirms you can repay, as the Scotsman Guide piece also notes. It just uses a different yardstick for income.

Documents are straightforward. Expect complete statements with every page, proof the business exists, and a business license or a letter from a licensed tax preparer. A fixed expense ratio is the standard route. Some programs let a CPA-prepared expense ratio replace it, which can raise qualifying income when your real overhead is low.

Here’s the Math, Using Percentages

These numbers are modeled assumptions for illustration, not market data and not a promise of any outcome. To avoid dollar amounts, everything is shown as a share of total deposits.

The contractor, business account. Picture a 1099 contractor whose client payments run through a business account.

• Total deposits over twelve months: 100%.
• Transfers from the owner’s savings and one loan deposit removed: 10%.
• Eligible deposits: 90%.
• Illustrative 50% expense factor applied: 45% of total deposits remain.
• That 45% is divided by twelve, giving qualifying monthly income.

So the lender counts roughly 45 cents of every deposited dollar as income. If the program allows a documented expense ratio below 50%, the share rises. If the contractor deposits mostly into a personal account, the treatment may differ, as covered below.

The commission earner, personal account. Picture a real estate or insurance salesperson whose payouts land in a personal account.

• Suppose two of the twelve months carry 40% of the year’s deposits.
• The twelve-month average is the same whether the money arrived evenly or in two bursts.
• But the underwriter will look at whether those bursts are repeatable, and may ask for the pay statements behind them.

Averaging smooths the income on paper. It does not hide the pattern.

Which Deposits Get Thrown Out?

This list is where files usually shrink. Expect any of these to be excluded or questioned:

• Transfers between your own checking, savings, and business accounts.
• Loan proceeds, credit-line draws, and cash advances.
• Gifts from family.
• Client refunds you later paid back, and reimbursements for expenses.
• Peer-to-peer app payments that mix personal and business money.
• Large one-time deposits without a paper trail, such as a vehicle sale.

The fix is prevention. Route client or commission payments into one account, keep personal transfers out of it, and keep the paperwork for any unusual deposit. A clean account reads better than a perfect one.

Personal or Business Statements?

The right account depends on where your money actually lands. Here is how the choice usually plays out.

Treatment varies by program. Some personal-account programs count most deposits as income, and others add extra proof of business activity. Lendmire’s piece How Personal Bank Statement Loan Rules Work for 1099 Contractors goes deeper on the personal side.

When both account types exist, a lender may combine them. The key rule is to avoid double counting. A transfer from your business account to your personal account generally counts once, not twice, and programs handle the details differently.

Where Commission Income Behaves Differently

Commission earners face problems that contractors mostly do not. Four come up constantly.

Lumpy payouts. A big payout in one period and little or nothing in the next is normal. The average handles it, but an underwriter wants to see that the pattern is a stable one.

Timing lag. Commissions often arrive weeks or months after the work. A statement window can capture a payout from last season and miss the current pipeline.

Split pay. If a brokerage or employer takes a share before you are paid, the deposit shows only your share. That usually helps, because the deposit is already net of those costs.

Seasonality. A window that catches only your busy months can overstate what you earn in a normal year. Ask your loan officer how the program handles seasonal income. Some programs allow a longer window for this reason.

Bank Statement Loan, 1099 Program, or DSCR Loan?

Three paths solve the same problem differently. This table compares them side by side.

A 1099-form program reads the forms themselves, usually with a standard reduction, and skips the statement review. It fits best when your 1099 total is close to your true gross income. Bank statements fit better when deductions are heavy.

A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. DSCR means debt service coverage ratio, which is the monthly rent divided by the full monthly housing obligation. If the property’s rent is thin against its payment, select lenders in the network offer sub-1.00 programs, though LTV and terms adjust. Lendmire’s complete DSCR loans guide explains how that side works.

Test the traditional route first if your return shows decent income. Conventional documentation is often the lowest-friction path when the return supports the loan. A bank statement loan earns its place when deductions make the return unusable.

What Leverage, Loan Size, and Reserves Look Like

Typical ranges across select lenders in Lendmire’s wholesale network look like this. Each file is underwritten individually, and nothing here is a commitment to lend.

Stronger files earn the top of each range. Investment-property purchases on bank statement documentation vary by lender, so there is no single number to quote. Loan amounts run roughly $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment.

Asset depletion is a related option. It qualifies a borrower from liquid assets instead of deposits, and it can suit a contractor between big contracts.

Does Occupancy Change the Rules?

Yes, and it matters more than most investors expect. The same documentation method can sit under two different disclosure regimes, depending on how you will use the property.

An owner-occupied file, meaning your primary residence or second home, is a consumer mortgage. TRID, the federal rule set for mortgage disclosures, applies to it. Federal ability-to-repay rules also apply.

A loan on a non-owner-occupied rental, including a short-term rental, is a business-purpose investor loan. Business-purpose loans are reviewed differently from a standard owner-occupied mortgage. The Federal Register’s ability-to-repay rule says business-purpose loans fall outside the ability-to-repay provisions and treats investment-purpose loans as business-purpose. The Federal Reserve’s Regulation Z guidance likewise treats credit to acquire or improve non-owner-occupied rental property as business-purpose.

The label is not automatic. The lender decides it by the loan’s purpose and how the property is occupied. For you, the practical effect is simple. The paperwork you sign, and in some states the licensing involved, differ by occupancy. Owner-occupied bank statement loans are offered in 16 states, so availability depends on where the property sits.

Where the General Rule Breaks

A few situations bend the pattern above.

• New self-employment. Some programs want two years of self-employment history, and others allow less with strong supporting documents. This varies by lender.
• Commingled accounts. If personal spending and client money share one account, the underwriter has more to sort out. A separate business account solves most of it.
• Co-borrowers. Adding a spouse with traditional employment income can strengthen the debt test. Whether it helps depends on the program.
• Heavy debts. Because your debts count, a large obligation can sink a file that looks strong on deposits. A DSCR loan avoids this on rentals, since the rent is the test.
• Irregular deposits. Money that cannot be traced to a source may be excluded. That can shrink qualifying income more than the expense factor does.

The more of these that apply, the more a quick conversation with a broker pays off before you apply. Lendmire sees many lenders’ guidelines, and the strictest overlays differ a lot on exactly these points.

Key Terms Defined

Bank statement loan: A non-QM mortgage that qualifies a borrower on documented income built from deposit averages, instead of traditional personal-income documentation.

Expense factor: The share of business deposits a lender assumes goes to overhead, which is subtracted before income is counted.

Non-QM: A mortgage that does not follow the standard qualified-mortgage income method but still verifies the borrower can repay.

Commingling: Mixing personal and business money in one account, which makes deposits harder to classify.

Asset depletion: A way of qualifying from liquid assets instead of income, spreading the assets over a set period.

DSCR: Debt service coverage ratio, meaning a rental’s monthly rent divided by its full monthly debt obligation.

What to Do Next

Reach the team at 828-256-2183, or request a quote through the Lendmire quote page.

This article is general information, not legal or tax advice. Tax treatment can depend on how the funds are used and how the property is held; borrowers should keep clear records and speak with a qualified tax professional before relying on any deduction. Talk with an attorney or CPA about your own situation.

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.

References

1. Scotsman Guide, “Rev Up the Engine for Non-QM Lending”

2. Federal Register, Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act

3. Federal Reserve, Regulation Z guidance on business-purpose credit