How to Get a Mortgage When You're Self-Employed
Self-employed? Learn your options for documenting income, how to prepare before you apply, and how bank statement loans calculate what you can borrow.
Getting a mortgage when you're self-employed comes down to one question: how will the lender document your income? You can qualify with tax returns like any other borrower or, if write-offs shrink your taxable income, with alternative documentation such as bank statements, a profit and loss statement, or 1099s.
Below, we explain how to get a mortgage when you're self-employed: how bank statement loans calculate your income, what to do before you apply, and which deposits and documents underwriters look at most closely.
Key Takeaways
If you do not plan to use tax returns to qualify for a loan, you need to show a steady flow of income into your business or personal account so you may be considered for a bank statement loan.
When your accountant drafts your CPA letter, ask whether your actual expense ratio can be documented, because that may be more favorable than a standard expense factor.
While your qualifying income will affect your loan amount, your credit profile can also influence your rate, costs, and down payment requirements.
How Bank Statement Loans Work for Self-Employed Borrowers
A bank statement mortgage for self-employed borrowers uses deposits shown on your bank statements to document income instead of relying only on tax returns. These loans are often used when business write-offs reduce taxable income even though the business generates enough cash flow to support the housing payment.
Underwriting usually starts with 12 or 24 months of personal or business bank statements, depending on the program. The lender reviews eligible deposits, removes transfers and other non-income items, averages the remaining deposits over the statement period, and then applies either a standard expense factor or a documented expense ratio.
For example, if eligible deposits average $10,000 per month and the expense factor is 50%, the qualifying income used for underwriting would be $5,000 per month. If a lower documented expense ratio is allowed, the usable income may be higher.
Most bank statement mortgage programs also require supporting documents that show the business is active, such as a CPA, tax preparer, or licensing letter. If the business has multiple owners, underwriting may also need documentation showing your ownership percentage before the income can be used.
Beyond income, the lender still reviews credit, assets, down payment, occupancy, and property type. The goal is not just to show deposits, but to show a stable, explainable cash-flow pattern that fits the program guidelines.
How to Prepare for a Mortgage When You're Self-Employed
Before you apply, a few steps can make your income easier to document and improve the loan options available to you. Here are four to start with:
1. Increase Your Deposit Amounts
If you aren't planning on using tax returns for your mortgage application, one of the most important things you need to do is make sure you have a steady stream of income flowing into either your business or personal account.
As a self-employed individual, it's easy to intertwine your business and personal accounts, but we highly recommend against this. The key here is to choose one as your primary account and make all your sources of income flow through it.
Since you won't be using tax returns to prove your gross income, you'll need to show 12-24 months of deposits into your account to qualify for the loan you want. Include every page of each statement, even blank ones, so the lender sees a complete record.
If your money is flowing into both accounts, then it has the potential to lower your average income.
2. Get Your Expense Ratio Into Your CPA Letter
You know your expenses better than anyone. If you choose to apply for a loan without evaluating your expenses, then be prepared to have a standard expense ratio applied to your gross income.
As previously mentioned, we use a 50% expense rate in our calculations. We play it safe here, and it's likely higher than your ratio.
However, asking your accountant to include your actual expense ratio in your CPA letter may be worth discussing. This way, we can use that information to evaluate your qualifying income more accurately.
Let's go back to that example from above. If your gross income is $10,000 per month, but your expense ratio is only 20%, then you could have $8,000 of income considered for qualification, versus $5,000 at a 50% ratio.
Note: Many bank statement programs require a minimum ownership share in the business before business account income can be used. Confirm the exact threshold with the lender for the program you are considering.
3. Build Up Your Credit Score and Evaluate Your Credit History
In addition to proving your gross income, your credit score is another important factor that determines your interest rate and down payment requirement.
A good credit score can indicate to lenders that you're a responsible borrower who may be more likely to repay your loan on time. This can translate to better loan options, depending on the program.
On the other hand, a lower credit score could result in fewer loan options or a higher interest rate.
Credit still matters on a bank statement mortgage. Your score and overall credit history can affect pricing, down payment expectations, and which loan options are available. Rather than relying on a generic chart, ask your loan officer how your current credit profile fits the specific program you are considering.
While many people dread looking at their credit scores, monitoring their financial health and checking for errors is critical.
If you find an error on your credit report, then you'll want to have it corrected as soon as possible. Additionally, you may be able to improve your credit profile by lowering revolving balances and making on-time payments.
You can monitor your scores and history using various tools or request a free report annually.
4. Set a Budget That Protects Your Business
Many self-employed borrowers want to put down as little as possible because the same cash also runs the business. Before you settle on a down payment, look at the liquid assets you have and set a budget that still leaves room for business operating needs after closing.
It also helps to keep funds in place and avoid large, unexplained transfers right before you apply. If money moves between business and personal accounts, make sure you can document the source so underwriting does not stall.
These steps will not replace full underwriting, but they can make your income easier to document and help your lender evaluate the strongest bank statement option for your file.
Explore Self-Employed Mortgage Options
If tax returns do not reflect the income your business actually generates, a bank statement mortgage may be worth reviewing. The right fit depends on your deposit history, expense ratio, ownership share, credit profile, assets, and down payment.
At Modern Day Lending, we review how your income is documented before you move too far into the process, including whether business or personal bank statements make more sense for your file. If you want to compare bank statement financing with other self-employed mortgage options, contact our team to talk through your scenario.
Bank Statement Mortgage Example Scenarios
Scenario | Statement Type | Average Monthly Deposits | Expense Treatment | Illustrative Qualifying Income |
|---|---|---|---|---|
Business owner using standard expense factor | Business statements | $10,000 | 50% expense factor | $5,000 per month |
Business owner with documented lower expenses | Business statements | $10,000 | 20% documented expense ratio | $8,000 per month |
Borrower with uneven seasonal deposits | 24 months of statements | Varies by month | Averaged over a longer period | Depends on eligible deposits after exclusions |
Borrower using personal statements | Personal statements | Varies by program | No business expense factor if program allows personal statement method | Depends on deposit sourcing and program rules |
These examples are only illustrations. Actual qualifying income depends on which deposits count, whether transfers are excluded, how business expenses are documented, and the rules of the specific program.
What Deposits May Not Count on a Bank Statement Mortgage
Not every deposit on a bank statement can be treated as income. Underwriters commonly look closely at transfers between accounts, one-time large deposits, loan proceeds, refunds, and other items that do not reflect recurring business revenue.
If a deposit is unusual, the lender may ask for an explanation or supporting documents before deciding whether it can be included. Keeping business cash flow clean and consistent in one primary account can make this review much easier.
Personal vs Business Bank Statements
Some bank statement mortgage programs are built around business statements, while others allow personal statements, and some offer both. The right option depends on how your income is deposited, how cleanly business and personal funds are separated, and how the program treats expenses.
Business statements may work well when revenue flows directly into the company account and expenses can be documented clearly. Personal statements may work better when business income is regularly transferred to a personal account and the program allows that method. A lender should review both options before deciding which produces the clearest qualifying income.
Frequently asked questions
How do I get a mortgage if I'm self-employed?
Start by deciding how you'll document your income. If your tax returns show enough income after write-offs, a conventional loan may work. If they don't, alternative documentation loans can qualify you with 12 to 24 months of bank statements, a profit and loss statement, or 1099s. Then gather complete statements, get a CPA letter if the program asks for one, and set a budget that leaves reserves for your business.
How do lenders calculate income on a bank statement mortgage?
Lenders usually total eligible deposits across 12 or 24 months, divide by the number of months, and then apply either a standard expense factor or a documented expense ratio. Transfers, one-time deposits, and other non-income items may be excluded, so the income used for qualification can be lower than total deposits shown on the statements.
Do I need business bank statements or personal bank statements?
It depends on the program and how your income flows. Some bank statement mortgage programs are designed for business statements, while others allow personal statements. The best option is usually the one that shows the clearest recurring income pattern and fits the lender’s rules for expense treatment and deposit sourcing.
Can I get a mortgage without tax returns if I am self-employed?
Possibly. Some non-QM and alternative documentation programs let self-employed borrowers qualify with bank statements, a profit and loss statement, or other records instead of standard tax return analysis. Whether that works depends on your business history, ownership share, credit profile, assets, and the lender’s program guidelines.
What documents are usually required for a bank statement mortgage?
Requirements vary by lender, but borrowers are often asked for 12 to 24 months of bank statements, identification, asset statements, and documents showing the business is active. Some programs also ask for a CPA, tax preparer, or licensing letter, especially when underwriting needs to confirm business activity or ownership percentage.
