The Quick Read: A lender averages 12 months of your deposits, strips out anything that isn’t real business income, and applies an expense factor, commonly 50%, so only half counts as income. That income sets the payment you can carry. Your equity sets the cash you can pull, and the tighter limit controls the loan.
- Qualifying income equals eligible deposits, divided by the number of months, times one minus the expense factor.
- The 50% is a common lender default, not a universal rule. It varies by program and by business type.
- On an owner-occupied cash-out, a primary residence typically reaches up to 80% LTV with a fixed expense ratio. Second homes and investment properties typically top out around 75%.
- An accountant-prepared ratio can raise your income, but on a primary-residence cash-out it typically lowers the leverage ceiling to 75%.
- If the property is a rental, compare this route against a DSCR loan, which tests the property instead of your deposits.
Key Terms Defined
Bank statement loan: A non-QM mortgage (a loan that falls outside standard agency rules) that qualifies a self-employed borrower on documented bank deposits instead of tax returns.
Expense factor (expense ratio): The share of business deposits a lender treats as operating costs. Those dollars are removed before the rest counts as income.
Qualifying income: The monthly income figure the lender uses after exclusions, the expense factor, and any ownership share.
DTI (debt-to-income ratio): Your monthly debts, including the new housing payment, divided by qualifying income.
LTV (loan-to-value): The loan balance as a percentage of the property’s appraised value.
Cash-out refinance: A new, larger mortgage that pays off the old one and hands you the difference in cash.
Seasoning of funds and deposits: The history that shows where money came from. Underwriters use it to decide whether a deposit is income.
What Is a Bank Statement Cash-Out Refinance?
It is a cash-out refinance where income comes from your account activity, not your tax returns. The loan is reviewed on documented income under the applicable program, subject to lender guidelines.
Why would a borrower need this? Self-employed owners often write off enough expenses that their tax returns show modest income. Meanwhile, their accounts show strong, steady deposits. Bank statement underwriting reads the accounts instead.
Across the wholesale network Lendmire works with, the documentation is typically 12 months of business or personal statements. Loan sizes generally run from $125,000 to $3,500,000. Reserves commonly sit around six months of the housing payment. Every file is underwritten individually, so treat these as typical ranges, not promises.
How Lenders Underwrite the 50% Expense Ratio, Step by Step
Here is the sequence on most programs. Order matters, because each step feeds the next.
1. Pick the statement type. Business statements get the expense factor. Personal statements often get little or none, but programs differ. A personal account full of business activity can be treated as a business account.
2. Collect complete, consecutive statements. Every page, every month. Missing pages are a common reason a file stalls.
3. Scrub the deposits. Transfers between your own accounts, loan proceeds, refunds, and unexplained or one-off deposits come out or must be sourced. Underwriters need to know the money is income.
4. Apply your ownership share. If you own 50% of the business, only your share of the deposits counts.
5. Average the eligible deposits. Divide the total by the number of months.
6. Apply the expense factor. At 50%, half of the average becomes monthly qualifying income. Lenders set this number. You do not pick it.
7. Run DTI. Qualifying income goes in the denominator. The debts are the new housing payment plus every other debt on your credit report.
8. Test the collateral. The appraisal sets value. The lender checks LTV against the ceiling for your occupancy type, then reviews reserves, credit, and the loan purpose.
One note on wording. “50% expense ratio” means 50% of deposits is removed as expenses and 50% counts. At 50% both readings give the same answer. At any other number they don’t, so always confirm which direction a lender means.
A Worked Illustration
Say your eligible deposits average out to 100 units a month. These are illustration-only index numbers, not real market figures.
| Scenario | Expense factor | Monthly qualifying income |
|---|---|---|
| Lender default | 50% | 50 units |
| Accountant-certified, low-expense business | 30% | 70 units |
| Accountant-certified, high-expense business | 60% | 40 units |
| Default, but you own half the business | 50% | 25 units |
Qualifying income then meets the new payment in the DTI test. A cash-out raises the loan balance, so the payment rises too. That is why a borrower with plenty of equity can still come up short on income.
The row to notice is the third one. A certified ratio above the default produces less income, so you would not submit it.
Why Lenders Can Use Bank Statements at All
Bank statements are a recognized way to verify income. The CFPB’s small-entity compliance guide for the ability-to-repay rule says lenders can verify income with records beyond W-2s, including bank statements. A Butler Snow compliance summary of the same guide notes that lenders need to verify and document enough income and assets to show you can repay.
Two practical points follow. First, non-QM does not mean skipped underwriting. The lender still has to prove the income is real, which is why deposits get scrubbed. Second, neither source sets a 50% figure. The expense factor comes from each lender’s or investor’s own guideline, and that is why it differs from program to program.
How Does a Cash-Out Change the Picture?
The income math is usually the same on purchase, rate-and-term, and cash-out files in the programs we place. What changes is the leverage ceiling, the reserves, and the size of the payment you must support.
Think of two ceilings. Income capacity is how large a payment your qualifying income can carry. Equity capacity is how much the LTV cap lets you borrow against the property. Whichever is tighter sets your cash.
Here are the typical cash-out ceilings across select lenders in the network, subject to lender guidelines:
| Property | Cash-out LTV, typical ceiling |
|---|---|
| Primary residence, fixed expense ratio | Up to 80% |
| Primary residence, accountant-prepared ratio | Up to 75% |
| Second home | Up to 75%, by loan size and credit |
| Investment property | Up to about 75% |
Don’t confuse these with purchase leverage. On a primary-residence purchase or rate-and-term refinance, select lenders go as high as 90% LTV. That ceiling does not carry over to a cash-out. Investment purchase leverage on bank statement documentation varies by lender, so ask before assuming a number.
There is also an alternative for borrowers with large liquid holdings. Asset-depletion qualification, which turns liquid assets into income, reaches about 80% LTV on a primary residence. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Occupancy also decides the paperwork. An owner-occupied cash-out, whether a primary residence or second home, is a consumer mortgage, so TRID disclosure rules 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 depends on how the property is used, not on the documentation type.
When Should You Leave the 50% Default?
Leave it only when your actual expense ratio is clearly lower than the default and a qualified professional will certify it. Some programs let a CPA letter or a prepared profit-and-loss statement replace the default with a documented ratio.
| Business profile | Does a certified ratio help? |
|---|---|
| Low expenses (consulting, services) | Often, because the real ratio may sit well under 50% |
| Mid expenses | Marginal. Run both numbers first |
| High expenses (inventory, labor, materials) | No. A higher ratio lowers income |
Before you pay for a letter, ask your accountant for a rough expense estimate. If it lands near or above 50%, skip the letter.
There is a leverage tradeoff too. On a primary-residence cash-out, the accountant-prepared route typically carries the lower ceiling, 75% instead of 80%. A higher income number is only a win if the smaller loan still gets you the cash you want. Lendmire’s piece Can You Get Approved for a Bank Statement Cash-Out Refinance With 50% Expense Ratio? covers that approval question in more depth.
Letter timing matters as well. Programs set age limits on letters and profit-and-loss statements, and the letter’s period should line up with your statement window. An old letter that doesn’t match your statements can be rejected.
What Underwriters Check Before They Trust Your Numbers
A claimed ratio gets tested against the account itself. If a letter says your expenses run 25% but your statements show heavy outflows to suppliers, payroll, and rent, expect questions. Underwriters compare the story to the cash movement.
They also look hard at these items:
- Large or irregular deposits. These cause more income surprises than anything else. Get a written explanation and proof of source before you submit.
- Commingled accounts. Mixed personal and business activity can lead a lender to treat the account as business, which brings the expense factor with it.
- Business history. Programs want proof you are self-employed and have been for a while. Required history varies by program.
- Credit and reserves. Both can move your pricing and your maximum leverage.
Where the General Rule Breaks
High-expense businesses. The 50% default can actually help you. Your real ratio may be higher, and a certified letter would only make things worse.
Personal statements. Many programs apply little or no expense factor to a clean personal account. Clean means business and personal money are separated.
Part-owners. Your ownership share cuts the deposits that count. Document it early.
Investment-property cash-out. Bank statement programs exist for rentals, but the cash-out ceiling is lower, around 75% LTV. One BiggerPockets thread shows how some self-employed investors feel about it. They describe being “penalized twice” by the expense factor and say DSCR loans make more sense for investment properties. That is opinion, but it points at a real structural difference. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Here is the contrast:
| Factor | Bank statement | DSCR |
|---|---|---|
| What gets tested | Your deposits and DTI | The property’s rent against its payment |
| Expense factor | Yes, on business deposits | None |
| CPA letter | Sometimes | Not used |
| Best fit | Owner-occupied homes, or investors who need income-based qualification | Non-owner-occupied rentals |
A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. If the rental’s coverage is strong, your deposits may not matter. If coverage is thin, a bank statement cash-out may be the alternative, but DTI then governs. Our complete DSCR loans guide explains how that test works.
Common Failure Points and Fixes
| Problem | Typical fix |
|---|---|
| Income short at the 50% default | Compare personal vs. business statements, or ask whether a certified ratio fits |
| DTI fails after the cash-out | Ask for a smaller cash-out, or pay down other debts first |
| Unexplained large deposits | Document the source in writing before submission |
| Equity is the limit, not income | Reduce the cash-out amount, or wait for more equity |
| Mixed accounts | Separate business and personal money going forward, and explain the history |
| Weak documented income overall | Ask whether an asset-depletion route fits your holdings |
A co-borrower with documented income can sometimes help too. That depends on the program.
File Checklist
- Complete, consecutive bank statements for the chosen window
- Proof of self-employment and ownership percentage
- Written explanations and sourcing for large deposits
- A CPA letter or prepared profit-and-loss statement, if you are using a certified ratio
- Current mortgage statement and homeowners insurance
- Documents for the reserves you are holding
Frequently Asked Questions
Does the expense ratio change for a cash-out versus a purchase?
On most programs the income method stays the same. The differences are the LTV ceiling, reserves, and the larger payment that the cash-out creates in your DTI.
Should I use 12 months or 24 months of statements?
Run both when the program allows it. Twelve months can look stronger if your business has grown recently. Twenty-four months can smooth out a lumpy year. Lendmire’s wholesale network commonly works from 12 months, but individual program sheets govern.
Can I write my own expense letter?
Generally no. Programs ask for a third party such as a CPA or tax preparer. The lender, not the borrower, decides which signers are acceptable.
What if my business costs run above 50%?
Stay with the default. A certified ratio above 50% would produce lower income. If income still falls short, look at personal statements, a smaller cash-out, or a DSCR loan if the property is a rental.
Is bank statement documentation the same as no documentation?
No. You still provide statements, credit, and an appraisal, and underwriters review each file individually.
Next Step
The right program depends on your property type, credit profile, leverage need, and how your deposits look after the scrub. Lendmire is a mortgage broker that works with a network of wholesale lenders, which means it can match your numbers to a program instead of forcing one lender’s rules on you. Lendmire’s consumer mortgage licensing covers 16 states, and availability is subject to lender guidelines and credit approval.
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. 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.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps self-employed and high-net-worth borrowers in 16 states qualify on bank statements, a profit-and-loss statement, 1099s or liquid assets instead of tax returns, through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and its guidelines. 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. Butler Snow summary of the CFPB compliance guide
3. BiggerPockets: Getting a Loan With Self-Employment Income
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 Twice in Twelve Months? · Can You Get Approved for a Bank Statement Cash-Out Refinance While the Property Is Listed? · Can You Get Approved for a Bank Statement Cash-Out Refinance Without an Escrow Account?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.