Qualify For A Bank Statement Loan When One Year Of Deposits Declined — The Quick Read: A declining year of deposits does not automatically sink a bank statement file. Underwriters look for a documented reason, a stabilization trend, or a lookback window that averages the weak year against a stronger one. The fix is usually structural — window selection, account type, expense-ratio documentation, or a letter of explanation — not a rejection.
What Actually Happens When One Year Is Down
A bank statement loan is reviewed for a self-employed borrower on deposit activity instead of tax-return income. When lenders pull 12 or 24 months of statements and see a down year sitting next to a flat or growing one, the file does not get an automatic decline. It gets flagged for review.
Across a wholesale network, the pattern is consistent: a decline triggers a request for explanation, not a denial letter. The underwriter wants to know why the number moved and whether it has already turned around. If the borrower can show a lost client, a completed one-time project, a seasonal trough, or a temporary slowdown that has since stabilized, most programs in the network will work with it. What they will not do is average in a decline without asking a single question about it.
Key takeaways before the mechanics:
- A one-year decline is a documentation event, not a disqualifying one on most files.
- The 12-month versus 24-month window choice is the single biggest lever available to the borrower.
- Personal-account deposits often qualify without the expense-factor haircut business accounts require.
- A letter of explanation paired with evidence of stabilization is standard practice, not a red flag admission.
- Loan size changes the leverage and documentation math significantly above roughly $4,000,000.
Choosing the 12-Month or 24-Month Window
The window a borrower picks changes how the lender sees the decline — sometimes enough to erase it entirely. If the trailing 12 months is the weak year, running 24 months pulls the stronger prior year into the average and often lifts the coverage figure. If the trailing 12 months is actually the strong year, a 12-month program lets that number stand without older, weaker months dragging it down.
This directional logic is well established in non-QM trade coverage. As Scotsman Guide explains, a self-employed borrower without a W-2 can have qualifying income calculated from 12 to 24 months of statements using a standard expense factor or a third-party-prepared profit-and-loss statement. The window itself is the lever — the borrower and the loan officer decide which one tells the more accurate story.
Run the logic this way:
1. Pull both windows before choosing. Total deposits for the trailing 12 months and separately for the full 24 months. Compare the monthly averages side by side.
2. Identify which year is doing the damage. If the recent 12 months is the down year, the 24-month average almost always helps by folding in the stronger prior period.
3. Check for a stabilization pattern. If income has already turned back up in the most recent few months, that trend matters to an underwriter even inside a weaker 12-month window.
4. Match the window to the loan program. Some programs in the network require 12 months only; others accept 24. The bank statement ladder used for larger loan sizes runs on a 12-month statement basis specifically, so window choice is not always optional once a file moves into that size tier.
Personal Accounts vs. Business Accounts
Personal-account deposits typically qualify at face value, while business-account deposits get reduced by an expense factor before they count. That difference alone can turn a declining-looking business file into a stronger personal-account file, without changing a single dollar deposited.
Business bank statements show gross deposits. Lenders apply an expense ratio to estimate what actually worked as net income. Across the network, that ratio typically scales with the size and type of the business. It runs lower for a service business with no employees, and higher as employee count grows or for product-based businesses, with a ceiling near the upper end for the largest or most inventory-heavy operations. An accountant-prepared ratio or a profit-and-loss method can override the fixed tiers when the business genuinely runs leaner than the standard assumption. Transfers from the borrower’s own business into a personal account count in full. That’s one reason many self-employed borrowers route deposits through personal statements when the numbers allow it.
A borrower defaulting to business statements without checking the personal-account picture sometimes leaves qualifying income on the table entirely, since the personal side skips the expense-factor haircut altogether. Worth checking both before assuming a decline is even a problem.
When a Decline Needs a Letter of Explanation
A letter of explanation is standard paperwork on a declining-deposit file, not a confession of a weak business. Underwriters ask for one whenever the year-over-year trend drops meaningfully, and the letter’s job is simple: explain the cause and show whether income has recovered since.
What makes a strong letter is specificity. A completed large project that will not repeat, a client relationship that ended, a temporary slowdown tied to a documented event — these are the kinds of explanations that satisfy an underwriter, especially when paired with evidence that the following period stabilized or improved. The letter alone rarely closes the file; it works alongside bank statements, a CPA letter, or year-to-date figures that back up the story being told.
Missing statements make this more complicated. Underwriting tools built for non-QM files now flag missing months automatically. According to Ocrolus, the company added both a declining-income indicator and a missing-statement identifier to its non-QM underwriting workflow. If a gap in the record isn’t reconciled with a clear explanation of why that statement is unavailable, it can get misread as part of the decline.
Seasonal Dips vs. a Real Decline
Seasonality and a genuine downward trend look identical on a single 12-month statement pull — the only way to tell them apart is a longer lookback. A business with predictable slow months (landscaping in winter, tax prep outside filing season, event planning between bookings) can show what looks like a steep decline if the trailing 12 months happens to capture the trough against a stronger comparison period.
The 24-month window exists partly for this reason. It smooths seasonal cycles and gives the lender a longer view of the actual cash-flow pattern instead of one narrow slice of it. A borrower running a seasonal business should expect to explain the cycle upfront rather than wait for the underwriter to flag it as an unexplained drop — flagging it early tends to move the file along with less friction.
Large Deposits That Distort the Picture
A single unusual deposit sitting in the “good” comparison year can make an otherwise stable business look like it declined, once that deposit is excluded as non-recurring during underwriting. This works the other direction too — a large deposit in the weak year that gets miscategorized can make a genuine decline look worse than it is.
Every large or irregular deposit needs a source before it reaches underwriting, not after. For comparison, on agency loans, Fannie Mae defines a large deposit as one exceeding 50% of total monthly qualifying income and requires lenders to evaluate those deposits. Non-QM and bank statement programs use their own thresholds instead of that exact agency figure, but the same rule applies: unsourced money gets questioned.
Where the Size of the Loan Changes the Math
Loan size determines which program applies and how much documentation flexibility exists. Across a wholesale network, bank statement and asset-based files run from roughly $300,000 to $30,000,000 through two separate structures — a portfolio non-QM program that carries files to $6,000,000, and a bank portfolio program with its own ladder that carries 12-month-statement files to $30,000,000: 65% loan-to-value to $5,000,000, 60% to $10,000,000, and 55% up to $30,000,000, with interest-only capped at 60% or the applicable band’s ceiling, whichever is lower.
Leverage on a primary residence steps down as size increases: up to roughly 90% around $1,000,000, 85% near $2,000,000, 80% around $3,000,000, and 75% at the top credit tier approaching $4,000,000 — after that, every file moves to case-by-case review before submission, and none of these figures apply to a second home or investment property, which typically run about five percentage points lower at each size tier.
A declining-deposit scenario interacts directly with these bands. A borrower near a leverage breakpoint with a down year has less room to absorb a conservative income figure than a borrower well inside a lower band. This is part of why window selection and account-type strategy matter more as loan size climbs — a five- or ten-point swing in qualifying income can be the difference between one leverage tier and the next above $2,000,000 or $3,000,000.
Reserve requirements also scale with size across the network: typically three months of reserves up to roughly $500,000, six months up to $1,500,000, and nine months above that, plus additional months for each other financed property, up to a 12-month maximum. First-time real estate investors typically need a full 12 months regardless of loan size. A declining-income file with thin reserves gives an underwriter two things to question instead of one, so shoring up reserves before submission tends to make the explanation letter carry more weight.
Investors With Rental Property: A Different Path Entirely
Say an investor’s personal business deposits dropped in one year. That doesn’t necessarily block them from financing a rental property. DSCR underwriting never looks at personal bank statements at all. As Scotsman Guide notes, an investor can qualify for a debt-service-coverage-ratio loan based on the cash flow the property itself generates. The rental income just needs to cover the property’s ongoing costs — mortgage, taxes, and insurance.
This distinction matters for anyone running a business alongside a rental portfolio. Say the business had a down year, but the investment property’s rent comfortably covers its own payment. A DSCR structure sidesteps the personal-income question entirely. DSCR loans are business-purpose investor loans, and lenders review them differently from a standard owner-occupied mortgage. Qualification runs mainly on whether the property’s rental income covers the payment, subject to lender guidelines. Lendmire’s complete DSCR loans guide explains how that property-income qualification works in more depth. And if you’re weighing bank statement income against straight rental cash flow, Lendmire’s comparison of DSCR loans versus bank statement loans shows which structure tends to fit which financial picture.
For a self-employed investor building both a business and a portfolio, this is worth thinking through early: does the property carry itself on its own rent, or does the deal still lean on personal deposit history? A property that clears roughly 1.0x on its own often moves the whole financing decision away from the business’s rough year altogether.
Non-QM Is Growing, Not Shrinking
Non-QM lending, the category bank statement loans fall under, has grown from a small niche into a meaningful share of the mortgage market. Non-QM loans made up about 10.2% of total U.S. mortgage originations by loan count in 2025, and roughly 10% by dollar volume, totaling more than $239 billion across nearly 698,000 loans, according to Polygon Research. That is a sharp climb from a 5% share in 2024, itself up from 3% a few years earlier.
Borrower quality has moved with it. The average non-QM borrower carried a 776 FICO score, close to the profile of a conventional conforming borrower — a fact that undercuts the lingering assumption that bank statement borrowers are inherently riskier credit risks. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Key Terms Defined
Expense factor: a percentage discount applied to gross business-account deposits to estimate the portion that functioned as actual net income, since gross deposits include money spent on business costs.
Lookback window: the 12- or 24-month period of consecutive bank statements a lender reviews to calculate an average monthly deposit figure for qualifying income.
Letter of explanation: a written statement from the borrower describing the cause of an income change, submitted alongside supporting documentation when an underwriter flags a decline.
Debt-service-coverage ratio (DSCR): a measure comparing a rental property’s income to its own monthly obligation, used to qualify investment property loans on property cash flow rather than personal income.
Case-by-case review: the underwriting approach applied above roughly $4,000,000 on primary-residence bank statement files, where leverage and terms are evaluated individually rather than against a fixed published tier.
This article is for general informational purposes only. It is not legal or tax advice. Loan programs, leverage tiers, and documentation requirements change, and lenders underwrite every file individually. Readers should talk to a qualified mortgage professional, attorney, or CPA about their specific situation before moving forward.
Frequently Asked Questions
Does a 30% deposit decline automatically disqualify a bank statement loan?
No single percentage automatically disqualifies a file. Underwriters look at the cause of the decline, whether it has stabilized, and which lookback window is used — a 24-month average can significantly soften even a steep one-year drop, subject to lender guidelines and the specific program.
Should I use my business account or personal account if my business had a down year?
It depends on how the money actually moved. Personal-account deposits typically qualify without the expense-factor haircut business deposits face, so a borrower whose business funds routed through a personal account may qualify on a stronger number than the same dollars would show on business statements.
Can I still get financing for a rental property if my personal income declined?
Often yes, through a different structure. DSCR loans qualify primarily on the rental property’s own income covering its payment rather than personal bank statements, so a business’s down year does not necessarily affect an investment property purchase or refinance, subject to lender guidelines.
How much does loan size affect leverage on a declining-income file?
Loan size can matter a great deal. Leverage on a primary residence steps down as loan size increases — from around 90% near $1,000,000 down through the mid-80s and 80s at higher tiers — and every file above roughly $4,000,000 moves to case-by-case underwriting review, which matters more when qualifying income is already conservative due to a down year.
What documentation helps the most when explaining a decline?
A specific, verifiable letter of explanation paired with evidence of stabilization — recent months showing recovery, a CPA letter, or year-to-date figures — tends to carry the most weight, along with sourcing any large or unusual deposits before the file reaches underwriting.
If a business’s declining year has you unsure whether a bank statement loan or a rental-property structure fits better, Lendmire can help compare options based on the deposit history, the property’s income, credit profile, leverage, and overall investor goals.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 40 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
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References
1. Scotsman Guide — “Rev Up the Engine for Non-QM Lending”
2. Ocrolus — Non-QM Underwriting Income Calculator
3. Fannie Mae Selling Guide — Depository Accounts
4. Polygon Research — Non-QM Market Data
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.
