How to Calculate Your Qualifying Income for a Bank Statement Loan

The Quick Read: Your qualifying income comes from averaging the eligible deposits in 12 months of personal or business bank statements, removing transfers, refunds and loan proceeds, applying the lender’s expense factor to business accounts, and scaling the result by your ownership share, which gives the monthly figure that the lender compares to your debts. The lender sets the expense factor, so treat your own math as an estimate.

• Only real income counts. Transfers between your own accounts, refunds and loan proceeds come out first.
• Personal statements usually count most eligible deposits. Business statements get an expense haircut.
• Ownership share scales the result, so a partner’s slice of the business is not your income.
• The final number feeds a debt-to-income check, along with credit, assets and reserves.

What Is Qualifying Income on a Bank Statement Loan?

Qualifying income is the monthly figure a lender credits you after reading your statements. A bank statement loan is a non-QM product. Non-QM means the loan sits outside the standard agency box and follows investor guidelines instead.

Most self-employed borrowers know the problem. Deductions lower the income on a tax return, even when plenty of money moved through the account. A bank statement program reads the deposits instead of the return. The borrower is reviewed on documented income under the applicable program, subject to lender guidelines.

This is not a no-questions loan. Credit, assets, debts and the property all get reviewed. Only the way income is proven changes.

How Do You Calculate Qualifying Income for a Bank Statement Loan, Step by Step?

The calculation has seven steps. Each one changes the final number, so skipping any of them produces an estimate the lender will not recognize.

Step 1: Choose the statement type. You can use personal or business statements. Many files can go either way, and the choice often moves the result more than anything else you control.

Step 2: Pull every statement. Gather consecutive months for every account the lender will count. Most programs the brokerage places files with use 12 months. Many also want about two years of self-employment history, though that varies by program.

Step 3: Strip out non-income credits. Remove transfers between your own accounts, refunds, and loan proceeds. Those deposits are not earnings. Counting them is the most common way borrowers overestimate.

Step 4: Average the eligible deposits. Add up what is left and divide by the number of months.

Step 5: Apply the expense factor (business accounts only). The lender keeps a share of business deposits to represent operating costs. The formula looks like this:

Eligible deposits ÷ months × (1 − expense factor) × ownership share = monthly qualifying income.

Step 6: Compare lookback windows where the program allows. Some programs let you use the stronger of two windows. Many fix one window. Ask before you assume.

Step 7: Compare income to obligations. The lender divides your monthly debts by qualifying income to get debt-to-income, or DTI. It then reviews credit, assets and reserves.

What Is the Expense Factor, and Who Sets It?

The expense factor is the percentage of business deposits the lender treats as operating cost. The lender sets it, not the borrower.

Scotsman Guide describes the standard method. A non-QM lender can apply a standard expense factor, with 50% as its example. The same article says the lender can instead rely on a profit-and-loss statement or an expense statement prepared by a third-party tax professional.

That 50% is a common default and an example, not a rule. Across the wholesale network Lendmire works with, the expense factor differs by lender and program. A few programs give credit for a documented lower factor, and the strictest overlays do not.

A profit-and-loss statement or accountant letter supports a lower factor. It does not replace the deposit analysis. A CPA letter is worth requesting only when your overhead is truly low, such as a consultant with few costs beyond software and a laptop.

A Worked Example With Line Items

To avoid inventing dollars, the example below uses an index. Call the gross deposits in your business account 100 for the average month. The figures are modeled assumptions, not market data.

Now apply the expense factor to that eligible 85. Then try two variations on the same data.

The same account produces three very different answers. The factor and the ownership share did all the work. Your deposits never changed.

A personal statement works differently. Personal statements typically count most or all eligible deposits, with no expense haircut. That sounds better, but the account only qualifies if the deposits are truly your income and the program accepts the account type.

Which Deposits Count? A Quick Classification Guide

Deposit classification is where borrowers lose the most income on paper. Use this table to sort your own statements before you do any math.

Large unexplained deposits typically need a letter and paperwork showing the source. The paperwork matters more than the letter. A sale of equipment with a bill of sale rescues a deposit. A vague note does not.

Round-number deposits get extra attention. They are not disqualified, but expect questions.

Personal, Business or Blended Accounts?

Treatment varies by lender and program, so run the numbers both ways before you pick.

Blended accounts cause the most trouble. If your paycheck and your self-employment income land in the same account, the lender separates them. Paychecks must not be counted twice. Sort the deposits yourself first, so the file arrives clean.

Business funds also raise a second question. Some programs apply another haircut to money held in a business account when you use it for the down payment or reserves. Not every program does. If your cash sits in the business, ask before you assume it counts in full.

Where deposits come from also matters across a window. Lendmire’s piece How a Shifted Deposit Year Changes Bank Statement Qualifying Income shows what happens when a strong or weak stretch moves in or out of the lookback.

12 Months or 24 Months?

A 12-month window captures recent growth. A 24-month window smooths out seasonality and lumpy years. Where a program allows both, compute both and use the stronger result.

Run it on a simple case. Say your income index for the most recent 12 months is 100, and the 12 months before that averaged 80. A 12-month window credits 100. A 24-month window credits 90. Rising income favors the shorter window.

Flip it. If the recent year is 100 and the prior year was 120, the 24-month average is 110, but a lender may be uneasy about the downward slope. Declining income is a flag no matter which window you use. Expect the lender to look at the trend and not just the average.

Most programs in the network Lendmire places files with document 12 months, so the two-window comparison often applies only on programs that offer a choice.

From Qualifying Income to Buying Power

Qualifying income matters because it sets your DTI. DTI is your total monthly debts divided by your monthly qualifying income, expressed as a percentage.

Take the 42.5 result from the first scenario. If your debts, including the new housing obligation, add up to 19, your DTI is about 45%. Under the 35% factor, the same debts against 55.25 give roughly 34%. The lender sets the allowed DTI by program, credit and loan size, so no single limit applies.

Credit, assets and reserves still matter. Reserves commonly run around six months of the housing payment on these programs, subject to lender guidelines.

Leverage depends on what the property is:

• Primary residence, purchase or rate-and-term refinance: up to 90% loan-to-value (LTV) through select lenders. The strongest files earn the top of the range.
• Owner-occupied cash-out, primary or second home: up to 80% LTV, with a fixed expense ratio, or 75% with an accountant-prepared ratio, by loan size and credit.
• Investment property cash-out: tops out around 75% LTV.
• Investment property purchase on bank statement documentation: varies by lender, so there is no single figure to quote.

Loan amounts typically run from $125,000 to $3,500,000. An asset-depletion alternative, which is reviewed against liquid assets instead of deposits, can reach about 80% LTV on a primary residence. Every figure here reflects select wholesale-network guidelines and is subject to lender guidelines, not a commitment to lend.

Where the General Rule Breaks

The formula above covers most files. These edge cases are where your estimate and the lender’s number split apart.

• Partial ownership. If you own part of the business, the lender scales the income to your share. A silent partner’s deposits are not yours.
• Multiple businesses or accounts. Total them carefully. Transfers between them are the easiest double-count.
• Overdrafts and returned items. Repeated negative-balance activity lowers underwriter confidence even if the deposits are strong.
• Gaps in deposits. A slow month is normal. A missing quarter needs an explanation.
• Seasonality. A landscaper or tax preparer has lumpy deposits. A longer window helps, where the program offers one.
• Declining income. A downward trend can mean a lower credited figure or a request for more support.

Non-QM does not mean unregulated. Occupancy decides which disclosure regime applies. An owner-occupied file, meaning a primary residence or second home, is a consumer mortgage, and 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 exempt from TRID. Know which one your property is before you compare offers.

On owner-occupied consumer loans, the federal ability-to-repay rule requires lenders to make a reasonable determination that you can repay. Alternative documentation changes how that capacity is proven. It does not remove the requirement.

Bank Statement Loan or DSCR Loan for an Investor?

A bank statement loan is reviewed for you. A DSCR loan is reviewed for the property. DSCR stands for debt service coverage ratio, which compares the property’s rent to its monthly obligation. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines.

That difference matters when you own several financed rentals. Each new loan adds to your personal DTI on a bank statement file. A DSCR file looks at the subject property instead. For the full picture, read the complete DSCR loans guide.

Neither product is better in every case. If you plan to live in the home, bank statement documentation is the tool. If you are buying a pure rental, DSCR often fits better.

Common Mistakes Before You Apply

• Counting transfers between your own accounts as income.
• Treating gross business deposits as if they were net.
• Forgetting the ownership share.
• Mixing a 12-month figure from one account with a 24-month figure from another.
• Assuming the expense factor is your choice.
• Ignoring large deposits you cannot document.
• Leaving reserves in a business account when the program may haircut them.

Tax treatment varies by borrower and situation, so consult a qualified professional before relying on any deduction.

Your Self-Calculation Checklist

1. Download every statement for every account you plan to use.

2. Mark and remove transfers, refunds and loan proceeds.

3. Total the eligible deposits and divide by the months.

4. Run business accounts at a conservative factor, then at a lower documented one if you have an accountant letter.

5. Multiply by your ownership share.

6. Build a range, not one number. Use the conservative figure to plan.

7. Divide your monthly debts, including the new housing obligation, by the result to see your DTI.

Haircut your own estimate. The lender will probably find something you missed, and a cautious number leaves room.

Key Terms Defined

Non-QM loan: A mortgage that follows investor guidelines instead of standard agency rules, often used when income is hard to show on a tax return.

Expense factor: The share of business deposits a lender removes to account for operating costs.

Eligible deposit: A deposit the lender accepts as real income, after transfers, refunds and loan proceeds are removed.

Debt-to-income (DTI): Your total monthly debts divided by your monthly qualifying income.

Loan-to-value (LTV): The loan amount as a percentage of the property’s value.

Reserves: Liquid funds you hold after closing, commonly counted in months of the housing payment.

Next Step

Lendmire is a mortgage broker that arranges financing through select lenders in its wholesale network, and its consumer mortgage licensing covers 16 states. Reach the team at 828-256-2183 or request a quote through the site. An editable calculator on the site gives an illustrative estimate to start from.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. 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. CFPB, Ability-to-Repay and QM Rule compliance guide