What Deposits Count as Income for a Bank Statement Loan?
If you are a self-employed professional in Colorado, you already know that tax write-offs are your best friend—until you apply for a traditional mortgage. Your net income after deductions rarely reflects your true cash flow, which is why Bank Statement Loans are such a game-changer.
Instead of W-2s and tax returns, these Non-QM loans rely on the money flowing into your accounts. However, not every dollar deposited over the last 12 or 24 months is counted as income.
As a specialist in self-employed and Non-QM lending, my job is to guide you through the underwriter’s perspective. Understanding what counts and what doesn’t is the key to a fast, smooth approval process with Choice Mortgage Group.
The Underwriter’s Goal: Consistent, Self-Generated Income
When an underwriter reviews your bank statements, they are looking for one thing: a consistent, predictable stream of self-employment revenue. The total amount of deposits is averaged over 12 or 24 months, and then an expense factor is applied to determine your qualifying income (e.g., if you deposit $10,000 per month, and the expense factor is 20%, your qualifying income is $8,000).
The primary task of the underwriter is to filter out “non-recurring” or “non-income” deposits that artificially inflate your cash flow average. This process is necessary because lenders must comply with federal guidelines, such as those related to the Ability-to-Repay (ATR) Rule established by the Federal Reserve Board, even when offering Non-QM products.
What COUNTS as Qualifying Income Deposits?
Any deposit that is directly generated from the operation of your business or your self-employed work is considered eligible. This includes:
- Client Payments: Checks, wire transfers, or digital payments (like Stripe, PayPal, or Venmo for business) clearly coming from customers for services or products rendered.
- ATM/Cash Deposits: These count, but frequent, large, unexplained cash deposits may require a Letter of Explanation (LOE) to confirm they are business-related.
- Transfers (Business to Personal): If you are using a personal bank statement loan but your business accounts are separate, a transfer from your business account to your personal account for the purpose of covering living expenses is typically counted, provided it’s consistent.
- Deposits from Business Accounts: If the statements are coming from an account in your name and your company is set up as a sole proprietorship, LLC, or S-Corp, the regular revenue deposits count. The ultimate requirement is that this income can be substantiated as derived from legitimate business activity, as outlined in requirements from the Internal Revenue Service (IRS).
Deposits That Do NOT Count (Non-Qualifying Income)
The following types of deposits are usually excluded from your total eligible income, as they are non-recurring, not self-generated, or represent a debt that must be repaid.
| Non-Qualifying Deposit Type | Why It’s Excluded |
| Inter-Account Transfers | A transfer between your personal checking and savings, or from one of your personal accounts to another, is simply moving money you already possess. It is not new income. |
| Loan Proceeds | Money received from a new business loan, a personal loan, or a line of credit advance is debt, not income. If this is identified, the underwriter will subtract the entire deposit. |
| Tax Refunds | A deposit from the IRS, whether federal or state, is a one-time payment. It is a return of overpaid taxes, not ongoing self-employment income. |
| Non-Self-Employed Income | W-2 wages from a separate, secondary job or social security income will usually be excluded, as the loan is focused on qualifying your self-employed income stream. |
| Unusual or Large Deposits | A single deposit that is significantly larger than your typical monthly average (often exceeding 50% of your average) must be sourced and seasoned. If you cannot provide documentation (invoice, bill of sale, etc.) proving it came from your business, it will be excluded. |
| Sale of Assets | Money received from the sale of a home, a car, or stocks is a one-time event and cannot be considered sustainable income for mortgage qualification. |
Expert Tip: How to Manage Large Deposits
The most common mistake self-employed borrowers make is allowing a large, unidentifiable deposit to enter their account during the bank statement review period.
For example, if your average monthly deposit total is $15,000, and you deposit $40,000 on one day from the sale of a piece of equipment, the underwriter will flag it.
The Solution: Source and Season Your Funds
- Sourcing: Be ready to provide an invoice or documentation for every large, non-routine deposit that shows it is a business transaction.
- Seasoning: Funds for your down payment and closing costs must typically be “seasoned,” meaning they have been in your account for at least 60 days. This prevents lenders from counting loan proceeds or other non-income funds as part of your reserves.
Working with an experienced Non-QM loan officer like RJ Baxter with Choice Mortgage Group ensures that your statements are pre-screened to identify and explain these potential red flags before they reach the final underwriter. This proactive approach saves weeks of delays and prevents potential loan denials.
Ready to Uncover Your True Buying Power?
Navigating the granular details of how lenders review bank deposits is crucial for self-employed success. Your deposits reflect your actual profitability, and we are experts at translating that cash flow into the strongest possible mortgage qualification.
Ready to explore how a Bank Statement Loan can unlock your homeownership goals? Connect with the most trusted mortgage resource in Colorado today!
Email: rbaxter@choicemortgage.com
Phone: (303) 670-0137
Office: 9200 E Mineral Ave, #100, Centennial, CO 80112
You can also explore more helpful mortgage education on our blog page.
