Qualify For A Bank Statement Loan With One Declining Deposit Year — The Quick Read: A single soft year of deposits usually does not sink a bank statement file, because these programs average income across a full 12- or 24-month look-back window instead of comparing two separate tax years. The weak stretch gets diluted into a longer average rather than treated as a standalone red flag. The real qualification questions are which window length helps the borrower more, whether a CPA letter can dispute the standard expense assumption, and whether the file needs a clear letter of explanation before it goes to underwriting.
Key Takeaways
- Bank statement programs average deposits over the whole statement window — one weak year inside a 24-month period gets smoothed, not flagged the way a two-year tax-return trend test would flag it.
- The look-back length (12 vs. 24 months is a lever the borrower and originator choose, not a fixed rule — model both before picking.
- A CPA letter or profit-and-loss statement can override the standard expense factor, but only when there’s a real, documentable reason the actual expense ratio ran lower than the program default.
- A letter of explanation covering what happened, why, and what changed is a normal part of the file, not an optional extra.
- Investors buying rental property may be able to skip this whole question by qualifying on the subject property’s rent instead of personal or business cash flow.
What Counts as “One Declining Deposit Year”?
A declining deposit year just means one 12-month stretch inside the borrower’s statement history came in lower than the year before or after it. It shows up most often with self-employed borrowers, business owners, and real estate investors whose revenue moves with contracts, seasonal demand, or a big one-time expense.
It matters because most consumer mortgages, including agency loans, run a two-year trend test on self-employed income. Under that framework, a down year forces the underwriter to use the lower figure and document why it happened, per Fannie Mae’s self-employed borrower guidance. Bank statement programs work differently. They read cash flow month by month across the whole window, so a single soft stretch gets folded into a longer average rather than becoming the whole story.
Key Terms Defined
Expense ratio — a fixed or documented percentage the lender subtracts from gross deposits to estimate what the business actually keeps as income.
Look-back window — the 12 or 24 consecutive months of bank statements the lender reviews to calculate qualifying income.
Letter of explanation (LOE) — a short written statement from the borrower describing what caused an unusual pattern in the file, why it happened, and what has changed since.
CPA letter / profit-and-loss statement — an accountant-prepared document that can replace the lender’s standard expense assumption when the business’s real operating costs run lower than the default ratio.
Qualifying income — the monthly figure the lender uses to calculate debt-to-income, calculated from average eligible deposits after the expense ratio is applied.
How the Averaging Actually Works, Step by Step
The lender does not isolate the weak year and stop there. The math runs across the full window, then the expense factor gets applied, then the file goes to underwriting with one blended number.
1. Pull the full statement window. Twelve or twenty-four consecutive months of personal or business account activity, never a single tax year.
2. Total deposits and strip non-income items. Internal transfers between the borrower’s own accounts and one-time, non-recurring deposits get removed before averaging.
3. Divide by the number of months. The result is a monthly average — the weak year is one input into that average, not a standalone verdict.
4. Apply the expense ratio to business accounts. Personal account deposits generally are not haircut the same way; transfers from the borrower’s own business into a personal account count in full.
5. Layer in documentation if the trend needs explaining. A letter of explanation, and sometimes a CPA letter, rounds out the file before submission.
It does not dictate how a lender treats one soft year — that call is left entirely to the individual program’s guidelines, which is exactly why outcomes differ so much lender to lender.
Business Statements vs. Personal Statements: The Expense Ratio Question
Across the wholesale network Lendmire works with, business bank statements almost always carry a fixed expense ratio, unless the borrower disputes it. On most files, this ratio runs 20% for a service business with no employees, 40% for a business with one to five employees, or 50% for a business with six or more employees or any business that sells a physical product. Some lenders in the network will accept an accountant-provided ratio instead of the fixed one. A profit-and-loss method is also available on some programs, up to an 80% cap. The Consumer Financial Protection Bureau’s Ability-to-Repay rule requires every mortgage lender, including non-QM programs, to find out, consider, and document a borrower’s income, assets, employment, credit history, and monthly expenses.
Personal account deposits typically skip this haircut entirely. This is one reason why a self-employed borrower may present a stronger coverage figure by routing distributions into a personal account instead of leaving them in the business account. The transfer counts at 100% once it lands in the personal account, subject to lender guidelines.
Trade coverage of this category states the underlying goal plainly. The point of a bank-statement program is to forensically extrapolate income from deposits and back out expenses to reach true income, according to Scotsman Guide. This framing matters for a borrower with a declining year. That’s because the expense ratio, not the raw deposit total, is often the variable that decides whether the down year moves the needle.
When a CPA Letter or P&L Can Actually Help
A CPA letter is a targeted tool, not a routine income boost. It works when the borrower can show their actual operating-expense ratio ran lower than the lender’s standard assumption — for example, a service business the lender would otherwise default to a 40% ratio, but that genuinely runs leaner. Scotsman Guide frames profit-and-loss statements from accountants as the exception, not the rule, and that framing holds across most programs Lendmire places files with. Pulling a CPA letter reflexively, without a real documentable case, tends to slow a file down rather than help it.
Where a CPA letter earns its place is a declining year caused by a one-time cost spike rather than falling revenue — a large equipment purchase, a legal settlement, a lease buyout. If the underlying revenue trend was flat or growing and the down year is purely an expense-side event, a CPA letter can reframe the number the underwriter actually uses.
12 Months or 24 Months: Which Window Helps a Declining Year?
Neither window is automatically better — it depends on where the weak year sits inside the borrower’s history. A 24-month window smooths a single soft year across a longer base, which helps when the weak year is buried between two stronger ones. A 12-month window helps more when the most recent year is the strongest and the borrower wants that recency reflected without an older down year dragging the average.
Run both. If the most recent 12 months clearly outperform the prior 24-month average, a shorter look-back — where the program allows it — usually produces a stronger coverage figure. If the decline was recent and the borrower needs the stronger prior years included, the 24-month window is the better fit. This is a program-selection decision made with the originator before submission, not a fixed formula.
Loan Size and Leverage: What the Numbers Actually Look Like
Bank statement financing through select lenders in Lendmire’s wholesale network runs from $300,000 to $30,000,000, spread across two distinct programs on their own size ladders — a portfolio non-QM bank-statement program carrying files to $6,000,000, and a bank portfolio jumbo program that carries twelve-month-statement files to $30,000,000 on its own leverage curve: roughly 65% at the lower end of that range down to 55% near the top, with interest-only capped at 60% or the band’s own ceiling, whichever is lower.
On a primary residence, leverage on the portfolio program steps down as the loan gets bigger — around 90% near $1,000,000, stepping to roughly 85% near $2,000,000, and continuing down through the $3,000,000 to $4,000,000 range at the top credit tier. Above $4,000,000, every file moves to case-by-case review before it’s even submitted — never a flat percentage at that size. Second homes and investment properties typically run about five points lower than the primary-residence figure at every size tier, subject to underwriting.
Credit floors run 660 on the portfolio program, 680 on the bank program, and 700 once a loan crosses the super-jumbo lines — $3,500,000 on a primary residence, $3,000,000 on a second home or investment property. Debt-to-income can run as high as 50% on most files. Reserve requirements scale with size: 3 months of reserves to $500,000, 6 months to $1,500,000, and 9 months above that, plus additional reserves for each other financed property the borrower carries. Cash-out is available with no cap at or below 60% loan-to-value, but proceeds are capped at $1,500,000 above that threshold on the portfolio program.
None of this replaces a rental-property option. If you’re buying a non-owner-occupied property, you can look at DSCR financing instead. This option qualifies you mainly on the property’s rental income, which must cover the payment, subject to lender guidelines. That’s a very different question from “did the borrower’s cash flow decline?” Lendmire’s complete DSCR loans guide explains how this qualification works when the borrower’s personal or business deposits don’t decide the outcome at all.
What Actually Derails These Files
A missing or thin letter of explanation is the single most common preventable problem. Frames a solid LOE as three parts — what happened, why it happened, what changed — and notes that a missing or inadequate LOE is one of the most common reasons an otherwise qualified file gets delayed or denied. Skipping it, or writing two vague sentences instead of a real explanation, is an unforced error.
Co-mingled deposits are the second problem. If business revenue and unrelated deposits — loan proceeds, gifts, asset sales — sit in the same account without a clean paper trail, the underwriter has to strip each item out manually, which slows everything and sometimes produces a lower average than the borrower expected. Cleaning up the statement composition before submission, not during underwriting, is the operational habit that keeps these files moving.
The broader non-QM category has grown large enough that a declining-year file is a routine underwriting event, not an edge case — non-QM origination represented 10.2% of total U.S. mortgage originations by loan count in the most recent full year, across more than 697,000 loans, according to Polygon Research. Lenders in this space have built specific processes around trend variability precisely because it comes up this often.
Who This Path Fits — and Who It Doesn’t
This option fits a self-employed borrower, business owner, or investor whose traditional personal-income documentation understates their real cash flow. It also fits someone whose declining year has a clear, documentable cause. This could be a client loss that’s since been replaced, a one-time expense, or a seasonal dip in an otherwise stable business. It also fits high-income professionals whose deductions make a tax-return-based mortgage a poor fit for their actual income.
It fits less well for a borrower whose decline reflects an ongoing, unresolved drop in revenue with no plausible reversal story — that file may need more reserves, a smaller loan amount, or a different qualification path like asset-based underwriting entirely. And for a straight rental-property purchase, the personal cash-flow question may not need solving at all if the property’s own rent supports the payment on a DSCR basis.
Tax treatment of any refinance or cash-out proceeds 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.
This article is for general information only. It is not legal or tax advice. Loan program details, leverage, and eligibility depend on the borrower’s full profile, the property, and current lender guidelines. These can change. Readers should talk to a qualified mortgage professional, attorney, or CPA about their own situation before making a financing decision.
Frequently Asked Questions
Does one bad year of deposits automatically disqualify a bank statement loan?
No. There’s no universal cutoff that makes a single declining year an automatic decline. The lender averages across the full 12- or 24-month window, so the weak year is one input into a longer calculation rather than a standalone disqualifier.
Should I choose a 12-month or 24-month look-back if I had a rough year?
It depends on where the rough year sits in the timeline. If the most recent 12 months are strong, a shorter window may help; if the weak year is buried between two stronger years, a 24-month window usually produces a better blended average. Run the math both ways before deciding.
Will a CPA letter fix a declining deposit year?
Only in specific situations — a CPA letter or profit-and-loss statement works when the business’s real operating-expense ratio is genuinely lower than the lender’s standard assumption. It is not a routine tool, and lenders expect it to be backed by a documentable case rather than used on every file.
Do personal account deposits get the same expense ratio haircut as business deposits?
Generally not. Business account deposits typically carry a fixed expense ratio before they count as income, while personal account deposits usually don’t get that same haircut. Transfers from the borrower’s own business into a personal account can count in full, subject to lender guidelines.
Would a DSCR loan avoid this problem entirely for an investment property?
Often, yes. DSCR loans qualify primarily on the subject property’s rental income covering its payment rather than the borrower’s personal or business cash flow, subject to lender guidelines. An investor with a declining year on their operating business may still have a clean file on a rental purchase if the property’s rent supports the debt service. Lendmire’s guide on how a bank statement loan can work with one declining year and its companion piece on whether one declining year of deposits kills a file go deeper on both paths.
Are you buying or refinancing a rental property? Lendmire can help you compare DSCR loan options. These are based on the property’s income, your credit profile, leverage, and your goals as an investor. Lendmire also offers bank statement financing. This can help borrowers whose cash flow shows more strength than their traditional personal-income documentation does.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 40 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
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. Fannie Mae’s self-employed borrower guidance
2. Consumer Financial Protection Bureau — What Is the Ability-to-Repay Rule?
3. Scotsman Guide — Don’t Drown in the Sea of Lending Sameness
4. Polygon Research — Non-QM Market Data
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.
