Can a Texas Contractor Get a Bank Statement Loan on a Paid-Off Home?

The Quick Read: Yes, a self-employed Texas contractor can usually qualify for a bank statement loan on a paid-off home, because the file is reviewed on documented income under the applicable program, subject to lender guidelines, but occupancy sets the rules: cash-out on a Texas primary residence carries fixed state limits, while a paid-off rental does not. Your trade is not the deciding factor. The use of the property is.

• A paid-off home means the new loan is a first-lien cash-out loan, and all of the proceeds are cash-out.
• On select lenders in Lendmire’s wholesale network, owner-occupied cash-out typically tops out around 80% LTV, and investment-property cash-out around 75% LTV.
• A Texas homestead cash-out also has state limits that no lender can waive.
• Qualifying income comes from your deposit history, not your tax-return figure, but the file is still fully underwritten.
• A paid-off rental can often skip personal income altogether through a DSCR loan.

Here is how the pieces fit together, in the order a contractor usually needs them.

Does a Paid-Off Home Change Anything?

Yes, but in a narrower way than most contractors expect. A paid-off home has no existing lien, so the new loan becomes the first mortgage. Every dollar you borrow is cash in hand. Lenders treat it as a cash-out refinance, and the cash-out leverage limits apply even though nothing is being paid off.

Two separate limits control the size of the loan. Think of them as two ceilings, and the lower one wins.

The income ceiling. Your documented deposits set how much monthly obligation the file can carry. Plenty of equity does not raise this ceiling. A contractor with a free-and-clear home and thin deposits can still be limited by income.

The equity ceiling. The program’s maximum LTV (loan-to-value, the loan amount divided by the appraised value) caps the loan against the property. On select lenders in the network, owner-occupied cash-out on a primary residence or second home typically runs up to 80% LTV, depending on loan size and credit. Investment-property cash-out tops out around 75% LTV. Loan amounts generally run from $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment.

Do not confuse these figures with the higher purchase numbers you may have seen. The top of the range, up to 90% LTV, applies to primary-residence purchase and rate-term refinance files, and stronger files earn the top of it. It does not apply to cash-out. A paid-off home is always a cash-out file.

For a deeper look at the dollars side, Lendmire’s piece How Much a Bank Statement Cash-Out Lends a Contractor on a Paid-Off Home walks through the sizing logic.

Texas Homestead or Texas Rental: Which Rules Apply?

Occupancy decides everything else, so settle it first. The table shows how the same paid-off property lands in different lanes.

A primary residence in Texas is a homestead. A Texas Legislature bill analysis explains that Section 50 of the state constitution protects a homestead from forced sale for nearly every kind of debt. The home-equity loan is one of the few enumerated exceptions. That exception is where cash-out lending lives, and it comes with conditions.

Per the constitutional text hosted by Justia, a home-equity loan on a Texas homestead comes with several built-in limits:

• Total debt against the home cannot exceed 80% combined LTV, counting every lien.
• A lender’s fees are capped at 2% of the loan amount.
• A mandatory waiting period applies before closing.
• Only one such loan can be secured by the homestead at a time, and closings must be spaced apart.
• Closing must take place at a lender, attorney, or title company office.

Confirm the exact subsection wording against the constitutional text itself, since it is the controlling source.

The practical point is simple. These are not lender policies. No program sheet, no matter how flexible, can go past them. A paid-off home does not mean unlimited cash-out in Texas, because the 80% cap applies even with no mortgage on the property.

A paid-off rental avoids that homestead framework. It is not your primary residence, so the state homestead limits do not drive the file. Many contractors who want cash for the next job site, truck, or down payment find that pulling equity from a rental is the cleaner route. It leaves the family home out of it.

One more wrinkle: homestead protection applies to people, not entities. If a home is titled in an LLC, the program rules for entity vesting come into play, subject to lender program eligibility. Raise this with your broker before you apply, not after.

How Do a Contractor’s Deposits Become Qualifying Income?

The lender turns raw deposits into a monthly income figure in a few steps. The method is conceptual here because every program sets its own details, and none of them should be promised in advance.

1. Collect the statements. Programs in the network typically use 12 months of business or personal statements. Market coverage notes that windows of 12 to 24 months are common, according to Scotsman Guide.

2. Remove deposits that are not income. Transfers between your own accounts, loan proceeds, gifts, and one-time windfalls come out first.

3. Apply an expense factor on business accounts. Your business deposits include money that pays for materials, subcontractors, and payroll. The lender discounts them to approximate what you actually keep. Scotsman Guide notes that a lender can use a standard factor, or instead rely on a profit-and-loss statement or an expense letter from a third-party tax professional.

4. Average to a monthly figure. The result becomes your qualifying income.

5. Compare it against your obligations. The new housing payment, your other monthly debts, and your credit profile all enter the decision.

Two points surprise contractors. First, the lender sets the expense factor, and you do not choose it. It depends on your type of work, your documentation, and your operating structure. A contractor who runs heavy subcontractor costs through the account should expect a meaningful discount. An accountant-prepared expense ratio can help, and on owner-occupied cash-out the network’s programs use a fixed ratio, with a lower one when a CPA prepares it. Programs differ on this point, so each file is underwritten individually.

Second, personal debts still count. A bank statement loan looks at your whole financial picture, so a truck payment and a card balance reduce what you can carry.

Bank statement income is a documentation method, not a shortcut. A consumer cash-out on a home you live in still requires a good-faith review of your ability to repay, as described on the CFPB’s ability-to-repay rule page. Non-QM lenders (lenders outside standard agency boxes) still confirm that ability, but they get more flexibility in how they document it.

Which Deposits Don’t Count?

Contractors run into this more than most borrowers, because project money moves through the account in all directions. The usual exclusions are:

• Transfers between your personal and business accounts.
• Loan proceeds, including equipment or line-of-credit draws.
• Owner contributions you put in to cover a slow month.
• Customer deposits that are really pass-through money for materials.
• Refunds, reimbursements, and one-time windfalls.
• Funds a sibling, spouse, or partner moved in.

Commingled accounts make this harder. If personal spending runs through the business account, an underwriter may spend extra time sorting out what is real revenue. Separating the accounts well before you apply makes the file cleaner. It is the best preparation a contractor can do.

Pattern matters too. A single large month, a declining trend, or repeated overdrafts can hurt a file. Seasonal work is workable when the longer window smooths the swings, but a steady slide in deposits is hard to explain away.

Personal or Business Statements?

The right account depends on how you pay yourself.

If you take regular draws and the business account is tidy, the business statements often tell the story best. If most of your income lands in a personal account, personal statements may fit better. Programs differ on which they accept and how they discount each. Contractors paid on 1099s may also look at a separate 1099-based program that some lenders offer, then compare the results side by side.

What If the Paid-Off Home Is a Rental?

This is where most investors should slow down and compare. If the paid-off property is a non-owner-occupied rental, you have two doors, and they answer different questions.

DSCR (debt service coverage ratio, meaning the monthly rent divided by the full monthly housing obligation) looks at the property, not you. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. A bank statement loan looks at your deposits and your personal debts. Select lenders in the network also offer DSCR programs below a 1.00 coverage ratio, though leverage and terms adjust when coverage is thinner.

DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. In practice, a business-purpose rental loan sits outside the consumer mortgage disclosure forms that an owner-occupied file uses. That is part of why the two lanes feel so different. Investment-property cash-out on either path tops out around 75% LTV on select programs, and the figure for a short-term rental can differ. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

So which should a contractor pick? The honest answer is a genuine toss-up that depends on the numbers. If your deposits are strong and personal debts are light, bank statement documentation can work. If the rent covers the obligation comfortably and your personal debts are heavy, DSCR often fits better because those debts generally do not drive the file. Lendmire’s piece DSCR Loan Vs Bank Statement Loan For Investors lays out that tradeoff, and the complete DSCR loans guide covers the investor side in full.

Across the wholesale network, the files that run into trouble are rarely about the trade. They are about a mismatch between the program and the property: a contractor tries to push a rental through an owner-occupied program, or runs a primary residence through a lane that cannot touch it. Settling occupancy first prevents most of that.

Who This Fits (and Who It Doesn’t)

It fits a contractor with consistent deposits over the statement window, a clean separation of personal and business funds, and a reason the tax return understates cash flow. Heavy write-offs and depreciation can make a profitable business look small on paper. Deposits show the real activity.

It does not fit a contractor with thin or erratic deposits, a short self-employment history, or accounts that are hard to untangle. Some programs want two years, and others accept 12 months from one account, depending on the program sheet. If your traditional personal-income documentation already shows strong income, tax-return qualification may be simpler and cheaper.

Market context is brief. Non-QM loans were about 5% of originations in a recent year per Scotsman Guide, citing CoreLogic, aimed largely at self-employed, investor, and foreign-national borrowers. They are a normal part of the market, not a fringe product.

Tax treatment 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.

Key Terms Defined

Bank statement loan: a non-QM mortgage that qualifies a self-employed borrower on deposits instead of tax-return income.

Non-QM: a loan that falls outside standard agency guidelines, so the lender sets its own documentation rules.

LTV (loan-to-value): the loan amount divided by the property’s appraised value.

Cash-out refinance: a new loan that replaces or sits on top of existing debt and hands you the difference in cash.

First lien: the primary claim on a property. On a paid-off home, the new loan takes this position.

Homestead: the home you live in, which Texas law protects from most creditors and limits for cash-out purposes.

Expense factor: the percentage a lender subtracts from business deposits to estimate what you actually keep.

DSCR: monthly rent divided by the full monthly housing obligation, used to qualify rental properties.

Next Step

Lendmire is a broker that arranges financing through select lenders in its wholesale network, and any outcome is subject to lender guidelines and is not a commitment to lend.

About Lendmire

Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.

References

1. Texas Legislature, SJR 60 Bill Analysis

2. Justia, Texas Constitution Article 16, Section 50

3. Scotsman Guide, One Out of 20 Mortgages Are Non-QM

4. Scotsman Guide, Rev Up the Engine for Non-QM Lending

5. CFPB, Ability-to-Repay and Qualified Mortgage Rule