When you are thinking about buying a home, one of the first things you will do is call a mortgage broker (X2 Mortgage being an excellent choice)—to get pre-approved. One of the first questions you’ll hear? “How do you earn your income?”

For many borrowers, the answer is simple: a W-2 job. W2 employees work as teachers, nurses, engineers, office administrators, sales associates, or any other role where an employer provides a steady paycheck. These jobs come with pay stubs, tax forms, and clear documentation of earnings. Because of this, W-2 employees can often qualify for a qualified mortgage easily—as long as their credit, debt, and savings align with specific loan requirements.

But what about business owners, freelancers, or commission-based professionals whose income isn’t so neatly documented?  These individuals have financial documentation, but they don’t always reflect their actual borrowing power. That’s where a bank statement loan becomes a game-changer. Instead of relying on tax returns, a bank statement mortgage allows self-employed borrowers to qualify based on their actual income deposits—not just what appears on paper after tax write-offs.

If you’re self-employed and looking to buy a home, this guide will break down everything you need to know about bank statement loans, including how they work, who qualifies, and their pros and cons.

 

What Is a Bank Statement Loan?

A bank statement loan, also known as a ‘self-employed mortgage’ or 'alternative doc’ loan,  is a type of non-QM (non-qualified mortgage) loan designed for self-employed borrowers who may not have traditional income documentation. 

Bank Statement loans are usually used for purchasing, but there is something called a Non-QM Second. This means a self-employed borrower, who may want a HELOC or HELOAN (second mortgage), can get one, which is helpful if you need some cash flow later on down the road. 

To get a Bank Statement loan, instead of requiring W-2s or tax returns, lenders evaluate 12 to 24 months of bank statements to determine income.

This option helps business owners and independent contractors qualify based on actual revenue rather than tax deductions that reduce their taxable income on paper.

​As of October 2024, approximately 9.84 million Americans were self-employed. Additionally, freelancers make up approximately 38% of the U.S. workforce. It is projected that by 2027, the number of freelancers in the US is expected to reach 86.5 million, accounting for 50.9% of the total U.S. workforce. ​In this area alone, this statistic proves the ever-growing need for more flexible financing options, such as bank statement loans, to accommodate non-traditional income sources.

How Do Bank Statement Loans Work?

Income Verification

Rather than using tax returns, your X2 mortgage broker will request your monthly bank statements. Then, investors will analyze these monthly deposits from either your personal or business bank account. They will typically average the income over a set period (usually 12 or 24 months) to determine qualifying income. This will go into the calculation of how much house you can buy.

While getting 24 months of bank statements is tedious, the longer the period of statements provided, typically the better financing you will get. 

After these are looked over, something called a Verification Of Employment (VOE) will be sent to your bank, so they can also verify this income. 

Personal Account or Business Bank account, which one should I use?

There are two ways someone can acquire a Bank Statement loan. 

Personal Bank statement loan: 

These statements are going to be requested if the borrower is using personal income. These loans are ideal for borrowers with multiple jobs, such as freelancers and contract and gig workers. This is ideal because there usually isn't consistent cash flow with these types of jobs. 

To qualify for a Personal Bank Statement Loan, you usually need: 

- Credit Score or FICO of 620 or higher. Higher scores are correlated with a better interest rate. 

- A low Debt to Income (DTI), no more than 50% ratio. So, the fewer monthly debt payments you have, the better. 

- The max loan amount is $2.5 million, so you need a purchase price around that.

- Besides going off of your deposits, you may need to give business receipts, depending on what your bank account looks like. 

Business bank statements 

If you are an owner of a licensed business, usually having an LLC or sole proprietorship, this loan would apply to you. Pro tip: If you own a business, you should never mix personal and bank accounts.

To qualify for a Business Bank Statement Loan, you usually need: 

- To have your business in good standing. 

- Most lenders consider 50% of your deposits as income. This is called an expense ratio. Keep reading for more information. 

- Personal statements may be needed to verify. 

- Financial Statements needed such as a balance sheet, Profit & Loss, and other documents to show proof of cash flow. 

- Borrowers must own at least 25% of the business. 

 

As with any loan, you may be required to submit additional documentation and fill out additional forms. This is standard mortgage practice, as investors want to reduce mortgage fraud and laundering as much as possible. I mean, wouldn't you!?

 

Other documents that may be required:

- Valid identification cards or a driver's license.

- Social Security Card/ITIN number.

- A copy of your business permit or license (if you are a business owner).

- Balance sheet (for business owners).

- Profit and loss statement (P&L) for the current fiscal year.

- Signed CPA letter confirming your business, also possibly showing your current expense ratio.

- Any liquid asset documentation- such as savings accounts, 401(k), or other investments.

Your X2 mortgage broker will walk you through each step of the way, ensuring you understand the process and why these documents are required. 

 

Who Qualifies for a Bank Statement Loan?

We’ve mentioned a few jobs that would benefit from Bank statement loans, but let's dive even deeper. Remember, bank statement loans are ideal for Self-employed individuals with at least two years of income history in the following lines of work: 

- Freelancers and gig workers who earn income from multiple sources, such as a Freelance copywriter, Graphic Designer, Financial Planner, or other IT work. 

- Business owners with significant tax deductions. This can be any business that you can think of, from an Etsy shop owner to a Bakery owner. 

- Commission-based professionals These jobs usually include real estate agents, consultants, and insurance sales reps. Travel agents, recruiters, and Pharmaceutical sales reps also make commissions. 

- Independent contractors are workers who lack W-2s but have steady deposits, usually called a 1099 job. These workers usually tackle projects under an agreement or contract. For example, food and grocery delivery workers, virtual assistants, dog walkers, rideshare workers, like Uber and Lyft, and even research and survey takers would all be considered independent contractors.  

 

Pros and Cons of Bank Statement Loans

Like any loan, an X2 Mortgage broker will help you decide what loan is best for you and your situation, as they all have pros and cons. 

Pros:

- No Tax Returns Required – As stated above, a borrower qualifies based on actual income, not reported taxable income, which can increase your purchase price significantly.

- Higher Loan Amounts – Great for high earners who deduct expenses on taxes–2.5 is a high purchase price. 

- More Flexible Income Calculation – Lenders consider actual deposits rather than net income, which creates flexibility for flexible workers. 

- Keeping it Simple – Self-employed borrowers don’t have to restructure their finances to qualify.

Cons:

- Higher Interest Rates – Every loan is based on risk. Because these loans are technically more risky than a W2 income source, rates are typically 1-3 points higher than other government or conventional loans

- Larger Down Payment – There are no easy Down Payment Assistance programs here. Down payment usually requires 10-20%+ down, depending on our investors.

- Sometimes Limited Lender Options – This can be a con for those shop mortgage rates with banks or credit unions. Not all lenders offer bank statement loans, but here at X2 Mortgage, we have DOZENS of lenders that we can shop your bank statement loan with.

 

How to Apply for a Bank Statement Loan

Step 1: Call X2 Mortgage and Gather Your Bank Statements

After calling your Mortgage Professional, you will be asked to send your 12 to 24 months of bank statements from either a personal or business account via email or upload to our secure online portal. 

Step 2: Know your FICO Score

It's a good idea to check your FICO, or credit score before beginning the loan process. Usually, you can get a guess from your banking app, or you can check with the three credit bureaus, Equifax, Experian, and TransUnion. A credit score of 620 is generally required, but a higher score like 700 or above can help secure better terms like interest rate and possibly a lower down payment.

Step 3: Need to Calculate Expense Ratio? How We Calculate Your Income

Lenders average your monthly deposits over the past 12-24 months to determine your qualifying income. If using a business account, an expense ratio (e.g., 50%) may be applied.

What is an expense ratio? Business owners typically have gross revenue coming into their accounts, but they also have expenses—such as payroll, rent, supplies, and taxes—that reduce their actual take-home pay. To estimate true income, lenders apply an expense factor (often 50%, but it varies) to determine how much of the deposits can be considered usable income for loan qualification.

Example Calculation

Suppose a business owner deposits $20,000 per month into their business bank account. If the lender applies a 50% expense ratio, they assume that $10,000 of that is actually available as income. This adjusted income is what the lender uses to calculate loan eligibility.

Why Does This Matter?

If your business has low overhead costs, you may be able to negotiate a lower expense ratio (e.g., 30-40% instead of 50%) with a CPA letter. 

If you use personal bank statements instead, lenders generally don’t apply an expense ratio, since all deposits are assumed to be take-home income.

 

Step 4: Provide Additional Documentation

Depending on the loan program, expect to submit:

- Bank statements (12-24 months)

- Profit & loss statement (if required)

- Business license (if applicable)

- Credit report and asset verification

Step 5: Get Pre-Qualification

A pre-qualification helps determine how much you qualify for before house hunting. Your loan officer will include both you and your realtor in this conversation and send you a specific form for you to use when you submit your offer. 

Step 6: Close on Your Loan.

The exciting part–once pre-qualified, you'll go through underwriting, provide any final conditions (more documentation), and close on your home! 

 

Is a Bank Statement Loan Right for You?

Consider a bank statement loan if you're self-employed and take significant tax deductions that reduce your taxable income. If your tax returns don’t accurately reflect your true earnings, but you have steady and consistent bank deposits, this type of loan can provide a path to homeownership. Additionally, since bank statement loans often require a larger down payment, they are best suited for borrowers who are financially prepared to invest more upfront.

A government-backed loan, such as a Conventional or FHA loan, maybe a better fit if you report significant earnings on your tax returns. These loan options typically come with lower interest rates and minimal down payment requirements, making them more accessible for borrowers with traditional income. Additionally, they offer more flexible credit score requirements and lower upfront costs, providing better terms for those who qualify. However, they may not be the right fit for everyone, especially self-employed borrowers whose tax returns don’t fully reflect their earning potential. You want to be able to buy as many houses as you can with what you qualify for, which is why the X2 Mortgage model helps all buyers with their Non-QM loans. 

 

Final Thoughts: Get the Right Loan for Your Situation

Bank statement loans provide self-employed borrowers with a flexible way to qualify for a mortgage based on actual income rather than tax returns. While they come with slightly higher rates and stricter terms, they offer a valuable option for those who wouldn’t qualify through traditional financing.

At X2 Mortgage, we specialize in helping business owners, freelancers, and independent contractors secure the right mortgage solution—one that aligns with your unique income structure and financial goals.

If you're self-employed and wondering if a bank statement loan is the right fit, let’s talk. We can help you navigate the process, maximize your qualifying income, and secure financing that works for you.

Let’s solve problems together—reach out today.