Bank Statement Loans for Self-Employed Borrowers
A bank statement loan is a non-agency mortgage in which a self-employed borrower documents income with bank account records instead of the tax returns that agency loans rely on. Fannie Mae's Selling Guide generally verifies a self-employed borrower's income with filed federal tax returns [2], while the federal ability-to-repay rule lists financial institution records among the reasonably reliable third-party records a lender may use [1]. Each lender sets its own program, and we will tell you what our lending partners require.
What is a bank statement loan?
A bank statement loan is a way of documenting income for a borrower who is self-employed or whose income is hard to show on a standard tax return. Instead of building qualifying income mainly from tax returns, the lender looks at deposits and activity in the borrower's bank accounts.
This is a non-agency product. It is not a Fannie Mae, Freddie Mac, FHA or VA program, so there is no single published rule for how many statements are reviewed, which accounts count, or how deposits are converted to income. We do not state those details here because no primary source exists for them. Our role as a mortgage broker is to ask our lending partners what they require for your file.
How is this different from how Fannie Mae documents self-employed income?
Fannie Mae's Selling Guide, section B3-3.5-01, says a lender may verify a self-employed borrower's income and employment with copies of the borrower's signed federal income tax returns filed with the IRS, both individual and in some cases business returns, with all applicable schedules [2]. The guide also notes that business income reported on an individual return may not represent income actually distributed to the borrower [2].
Tax returns reflect deductions a business legitimately takes. A self-employed borrower whose returns show low net income after those deductions can find that an agency underwriting method supports a smaller income than the business's cash flow suggests. A bank statement loan is not an easier route in every case: the lender still has to be satisfied, and the cost and terms are set by the lender.
Does a bank statement loan skip the income check?
No. When a bank statement loan is a consumer credit transaction secured by a dwelling, for example a home you will live in, the ability-to-repay rule in 12 CFR 1026.43 applies. It says a creditor may not make a covered loan without a reasonable and good faith determination that the consumer will have a reasonable ability to repay [1].
The same rule requires the lender to verify the information it relies on using reasonably reliable third-party records. The examples in the rule include IRS tax-return transcripts, copies of filed tax returns, W-2s, payroll statements and financial institution records [1]. That is how bank records can be used: they are one recognized type of third-party record, not an exception to the verification requirement.
If the property is a rental or investment property bought for a business purpose, a different set of rules may apply. See our DSCR page for how that classification works.
Who is a bank statement loan for?
It is aimed at self-employed people such as business owners, freelancers and independent contractors whose bank deposits tell a fuller story than their tax returns. A borrower whose income is documented by W-2s or payroll statements, which the ability-to-repay rule also lists as acceptable records [1], may not need this kind of documentation approach.
Whether it fits you depends on your business, your accounts and your property. A loan officer reviews that with you, and we cannot promise approval or any outcome.
What should I gather before I apply?
We do not publish a required document list for bank statement programs, because it differs by lender and we have no primary source to cite. What helps in any case is knowing where your business income is deposited, whether personal and business accounts are separate, and whether your tax returns are filed. The agency method in the Selling Guide starts from filed returns [2], and a lender comparing the two approaches will want to understand both.
Frequently asked questions
Can I qualify for a bank statement loan without tax returns?
That depends on the lender's program. Fannie Mae's Selling Guide generally verifies a self-employed borrower's income with filed federal tax returns [2], while bank statement programs from other lenders use bank records instead. We will tell you what our lending partners require.
Sources: B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower
Does the ability-to-repay rule apply to a bank statement loan?
If the loan is a consumer credit transaction secured by a dwelling, yes. The creditor must make a reasonable and good faith determination of the consumer's ability to repay [1].
Sources: 12 CFR 1026.43 Minimum standards for transactions secured by a dwelling
Are bank records a recognized way to verify income?
The ability-to-repay rule says a creditor must verify information using reasonably reliable third-party records, and its list of examples includes financial institution records [1].
Sources: 12 CFR 1026.43 Minimum standards for transactions secured by a dwelling
Why might a self-employed borrower not qualify on tax returns alone?
Fannie Mae's guide notes that business income shown on an individual tax return may not represent income actually distributed to the borrower [2]. How a particular lender treats that difference depends on its program.
Sources: B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower
Sources
- 12 CFR 1026.43 Minimum standards for transactions secured by a dwelling. Electronic Code of Federal Regulations (eCFR). §1026.43(c)(1) general requirement; §1026.43(c)(3) verification using reasonably reliable third-party records. Accessed .
- B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower. Fannie Mae Selling Guide. Accessed .