How a Lender Counts Insurance Premiums on a Bank Statement Loan

Self-employed borrowers often ask whether insurance shows up in the numbers on a bank statement loan. It does, and it shows up twice. Knowing where each premium lands keeps surprises out of the file.

The Quick Read: A lender counts insurance premiums in two places: the new property’s annual premium is divided by twelve and added to the monthly housing payment, while insurance your business pays from its operating account is already absorbed by the expense factor applied to business deposits. Waiving escrow does not remove the premium from the lender’s math. The figure comes from a real quote or declarations page, not an estimate.

• The deposits set your income. The new property’s premium sits on the obligation side.
• A higher premium raises the housing payment and narrows your headroom against income.
• Business insurance premiums are part of the program’s expense factor. They are not added back item by item.
• Occupancy decides how the file is reviewed. Owner-occupied loans and rental loans follow different paths.

What Is a Bank Statement Loan Actually Measuring?

A bank statement loan measures income from deposits instead of traditional personal-income documentation. The file is reviewed on documented income under the applicable program, subject to lender guidelines. Across the wholesale network, the standard documentation is 12 months of business or personal statements.

The underwriter totals eligible deposits. Transfers between your own accounts, refunds and loan proceeds come out. Insurance claim payouts or reimbursements deposited into the account are also commonly screened out, though treatment varies by program.

On business statements, the lender then applies an expense factor. It reflects the costs of running the business. The result is averaged over the statement period and adjusted for your ownership percentage. Kubera’s explainer walks through the same general formula: deposits, an expense factor, ownership share, then a monthly average. The factor itself differs by lender, so no single number applies across programs.

Personal statements usually carry little or no expense factor, once non-income credits are removed. That is why the account type matters so much.

Where Does Insurance Enter the File?

Insurance enters in two separate places. On the income side, business insurance premiums paid from the operating account are one of the many costs the expense factor is built to cover. On the obligation side, the premium for the property you are buying or refinancing goes into the monthly housing payment.

Do not mix the two. Paying business liability coverage from your operating account does not lower the new property’s premium. Paying the new property’s premium personally does not get added back to your income either.

Most programs apply a flat or documented factor to business deposits. They do not rebuild your income line by line. If you want to know how a given program treats a specific business expense, ask the program before you submit. No universal add-back rule exists.

How Does the Premium Become Part of the Payment? Step by Step

The conversion follows the same order on almost every file.

1. Get a real quote. The lender wants the actual figure from a quote, binder or declarations page. A neighborhood average or the seller’s old policy is not a substitute.

2. Annualize it. The full annual premium is the starting number.

3. Divide by twelve. The monthly figure joins principal, interest, property taxes and any association dues.

4. Add required extras. Flood, wind or hail coverage that the lender requires joins the same total.

5. Set it against income. On owner-occupied files, the new housing payment plus your other monthly debts is compared with the qualifying income from the statements.

6. Check the reserves. Reserves commonly run around six months of the housing payment on this lane, so a larger premium also raises the reserve target.

Every number in that chain depends on the quote. If the quote is wrong, the whole file is wrong.

What the Premium Does to Your Headroom

Take the same borrower and the same deposits. Only the premium changes.

Income does not move, because the deposits did not change. Only the obligation side moves. On a file near the limit, a premium increase between application and review can cost the borrower headroom. This is the quiet way a good income calculation still produces a tight file.

The cost pressure is real. BiggerPockets reported that landlord premiums jumped nearly 8% in a single quarter, with analysts projecting continued upward pressure.

Which Coverage Types Count?

Counting depends on what the lender requires for the property. The table shows the usual pattern.

Policy type matters. A rented property needs a landlord or dwelling-fire policy. A standard homeowners policy on a rental is the wrong product and often gets flagged.

Flood is decided by the lender’s flood determination, not by a listing site or a neighbor’s experience. Federally regulated lenders must require flood coverage in a Special Flood Hazard Area. Non-bank lenders in the network commonly require it by guideline anyway. Do not assume the requirement is absent because of the lender type.

Condo master policies are the least predictable item. How a gap in the master policy or an HO-6 requirement flows into the file is program-specific, so ask early.

Do not confuse homeowners insurance with mortgage insurance or title insurance. Homeowners insurance protects the property. Mortgage insurance, where used, protects the lender. Title insurance covers ownership defects and is a one-time closing item. Only the first two sit in the monthly payment.

Does Waiving Escrow Remove the Premium From the Math?

No. Skipping the escrow account changes how you pay the premium. It does not change whether the lender counts it.

On owner-occupied loans, the CFPB’s rule text on mortgage-related obligations says taxes, insurance and similar required charges count in the lender’s repayment review whether or not an escrow account exists. Lenders in the network on these files treat the premium the same way: it is in the payment.

Prepaid insurance at closing is a separate item. It is part of cash to close, not the monthly payment.

Why Occupancy Changes the Review

Occupancy decides which rules frame the file, so the same premium can be reviewed differently on two properties.

An owner-occupied purchase or refinance, such as a primary residence or second home, is a consumer mortgage. The lender runs a full repayment review that puts the housing payment, premium included, next to your other monthly debts and your qualifying income. Disclosure rules for consumer mortgages apply. This lane’s primary-residence purchase and rate-term leverage goes up to 90% LTV on stronger files. Cash-out is lower: up to 80% LTV on a primary residence, up to 75% LTV on a second home, and around 75% LTV on an investment property.

A non-owner-occupied rental, including a short-term rental, is business-purpose. Consumer disclosure rules do not apply, and the lender’s own guidelines decide how premiums are counted. Investor-focused leverage and coverage-ratio guidance belongs to the DSCR side. The complete DSCR loans guide covers how rental coverage works when the property’s income carries the file.

The old 43% debt-to-income line is a good example of why guideline details matter. It came from an earlier qualified-mortgage definition, and the Federal Register notice shows where it originated. Bank statement loans are non-QM, so lenders set their own ceilings by program. Do not assume the old number still governs.

Where the General Rule Breaks

Several edge cases change the treatment.

Personal statements for business income. If you submit personal statements but the deposits really come from a business, a lender may ask for business statements or treat the personal ones as business, so an expense factor applies. Submit the account that actually receives the revenue.

A documented factor instead of the default. Some programs accept a lower factor when a CPA or a profit-and-loss statement supports it. That helps a borrower with a lean business. It does not mean every file earns it, and some files stay at the default even when the borrower’s own narrative argues for less. The factor is a program rule, not a universal figure. For a look at how a specific income type is counted, see Lendmire’s piece How a Bank Statement Lender Counts a $62,000 Gig 1099-K.

Other rentals you already own. If your existing rentals carry insurance, how those payments are treated in the debt review is program-specific. Ask before you assume they are netted against rent.

Rate-of-change risk. A quote that is several months old may not survive review. When the renewal premium arrives before closing, the payment changes with it.

Partial ownership. Deposits into a shared account are counted by your ownership share, which affects how much income is available to carry the premium. Lendmire’s article How a Bank Statement Lender Counts Deposits for a Partial Owner walks through that math.

Common Misconceptions

Bank statement loans ignore insurance. The statements only set income. The new property’s premium still enters the payment.

Business insurance premiums get added back to income. The programs described here use a flat or documented expense factor on business deposits. They do not add back items one by one.

It is a no-paperwork loan. The lender still pulls credit, checks assets and reviews debts and the property. The paperwork changes. It does not disappear.

Flood insurance is a lender fee. The requirement comes from the flood zone, not from lender preference.

What You Can Do Before You Apply

You cannot change the formula, but you can control the inputs.

• Request a bound quote early, written for the right occupancy and policy type.
• Compare the quote at a low, expected and high premium, so you know how much headroom the file has.
• Ask about deductible choices. A higher deductible can lower the premium, but confirm the lender accepts the lower figure.
• Confirm the flood determination before you lock the budget.
• Keep reserves documentation current. The reserve target moves when the premium moves.
• Tax treatment varies; consult a qualified professional.

Key Terms Defined

Expense factor: The percentage a lender subtracts from business deposits to account for the costs of operating the business.

Housing payment: The monthly total of principal, interest, property taxes, insurance and any association dues.

Declarations page: The insurer’s summary of a policy, showing coverage, deductible and the annual premium.

Escrow: An account the servicer uses to collect and pay taxes and insurance on your behalf.

Reserves: Liquid funds, commonly around six months of the housing payment, that you hold after closing.

Flood determination: The lender’s check of whether a property sits in a mapped flood zone.

Programs and figures are subject to lender guidelines and are not a commitment to lend.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging bank statement and other alternative-documentation mortgages — P&L-only, 1099-only and asset-based paths — through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Kubera, bank statement loan explainer

2. BiggerPockets, what is driving the landlord insurance crisis

3. CFPB Regulation Z § 1026.43, mortgage-related obligations

4. Federal Register, ability-to-repay and qualified mortgage final rule