Bank-statement income calculator
Bank statement loans use your deposits instead of tax returns to figure income. Business accounts take an expense factor off the top.
How is income calculated for a bank statement loan?
Bank statement loans calculate income from your average monthly deposits instead of tax returns, minus an expense factor for business accounts. For example, $456,000 deposited into a business account over 24 months averages $19,000/mo. With a 50% expense factor, qualifying income is about $9,500/mo, or $114,000 a year.
Bank-statement income estimate
Business statements: a 50% expense factor is taken off deposits. A CPA letter or P&L can support a lower factor.
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How the calculation works
Lenders exclude transfers between your own accounts, loan proceeds, refunds and one-time deposits that aren't business income. Large unusual deposits may need an explanation.
Expense factors
- Many lenders use 50% for most businesses.
- Some use lower factors, such as 20%–30%, for service businesses with few expenses.
- A CPA or tax preparer letter stating your actual expense ratio can support a lower factor.
- Personal bank statements often use 100% of deposits, since business expenses are already paid.
12 or 24 months
Twelve months uses your most recent income, which helps if your business is growing. Twenty-four months smooths out swings and sometimes gets better pricing. Self-employed loans.
Questions people ask
What deposits are excluded from bank-statement loan income?
Lenders exclude transfers between your own accounts, loan proceeds, refunds and large deposits you can't document when they figure bank-statement income. One-time deposits that aren't business income are left out too.
Can I get a lower expense factor on a bank statement loan?
Often, yes. A CPA or tax preparer letter stating your actual expense ratio, or a profit and loss statement, can support a lower expense factor than the 50% many lenders use. Some lenders use 20%–30% for service businesses with few expenses.
Should I use 12 or 24 months of bank statements?
Use 12 months of bank statements if your income has grown recently, since it reflects your most recent deposits. Use 24 months to smooth out swings; the longer period can earn better pricing.
A worked example
A photographer runs business income through a business account. Over 24 months, eligible deposits total $312,000, an average of $13,000 a month. The lender uses a 50% expense factor for her type of business, so qualifying income is $6,500 a month. Her CPA writes a letter showing actual expenses are about 30% of revenue; with a lender that accepts it, qualifying income rises to $9,100 a month.
On a $4,000 total monthly debt load including the new loan, that's the difference between a 62% debt-to-income ratio, which won't qualify, and 44%, which can. It's why the expense factor is the first thing to discuss with a loan officer.
Mistakes to avoid
- Transfers counted as income.
Also asked
Do I need a business bank account for a bank statement loan?
Not always. Many lenders accept personal statements if you run business income through them, usually counting 100% of deposits. Mixing business and personal money can make the review harder, since each deposit may need to be explained.
What if one month of bank statement deposits was unusually high or low?
The average smooths it out, but a large, unusual deposit may be excluded unless it's typical business income. A month with very low deposits isn't usually a problem if the overall trend is stable or rising.
Will I still need tax returns for a bank statement loan?
Usually not. Bank statement loans replace tax returns for proving income, but lenders may still ask for proof the business exists, such as a business license, CPA letter or two years of the business operating.
Do I need statements from every bank account for a bank statement loan?
Usually not. Bank statement lenders typically need statements only from the accounts where business income is deposited, though they may ask about transfers that come in from your other accounts.
Can I use a mix of business and personal bank statements?
Some lenders allow a mix of business and personal bank statements if you clearly document which deposits are income. Personal statements often count 100% of deposits, while business statements take an expense factor off the top.
Can I combine W-2 and bank-statement income?
Sometimes. Some lenders let you combine W-2 and bank-statement income on one loan, using pay stubs to document wages and bank statements to document self-employment income.