Self-employed business owner reviewing business and personal bank statements for a mortgage loan

If you are self-employed and considering a Bank Statement Business vs Personal approach in Colorado, choosing the right account type can directly impact how much income you qualify with. This decision is often overlooked early on, but it plays a major role in how lenders analyze risk and cash flow for bank statement loans.

Bank statement loans allow self-employed borrowers to qualify using deposits instead of tax returns. If you want a broader overview of how these programs work and who they are designed for, start with this guide to bank statement loans in Colorado.

Below is a clear explanation of how personal and business bank statements are treated differently by lenders, how income is calculated for each, and how to determine which option makes the most sense for your situation.

Why the Account Type Matters for Bank Statement Loans

Unlike traditional mortgages, bank statement loans focus on actual cash flow rather than taxable income. However, lenders do not view all bank accounts the same.

The account type you use affects:

  • Whether expenses are assumed
  • How conservative the income calculation is
  • How much of your deposits count as qualifying income
  • The likelihood of underwriter questions or conditions

Understanding these differences early can help you avoid unnecessary friction during underwriting.

Using Personal Bank Statements for a Bank Statement Loan

How income is calculated

When personal bank statements are used, lenders typically:

  • Count 100 percent of eligible deposits
  • Do not apply an expense factor
  • Review deposits for consistency and source

This approach often results in higher qualifying income when the borrower qualifies.

For a deeper breakdown of how lenders average deposits and determine qualifying income, review this guide on how income is calculated from bank statements in Colorado.

When personal bank statements work best

Personal bank statements are often a good option if:

  • You pay yourself regularly from your business
  • Income flows directly into your personal account
  • Deposits are clearly tied to earned income
  • Business expenses are paid from a separate account

Limitations to be aware of

Even with personal statements:

  • Transfers between accounts do not count as income
  • One-time or irregular deposits may be excluded
  • Lenders must be able to clearly source deposits

The Consumer Financial Protection Bureau explains why consistent, documented income matters during mortgage underwriting.

Using Business Bank Statements for a Bank Statement Loan

How income is calculated

When business bank statements are used:

  • Lenders apply an expense factor
  • Only a percentage of gross deposits counts as income
  • The expense factor reflects operating costs

Example:

  • $20,000 average monthly deposits
  • 50 percent expense factor
  • $10,000 qualifying monthly income

Why expense factors are applied

Lenders assume the business has expenses such as:

  • Payroll
  • Rent or overhead
  • Supplies and operating costs

This prevents overstating income that may not be available to you personally. The IRS provides guidance on business income and expenses that influence these assumptions.

Can a CPA Letter Help With Business Bank Statements?

In some cases, yes. A CPA letter may help support a lower expense factor when business bank statements are used.

A properly prepared CPA letter can:

  • Confirm the business’s actual operating expense ratio
  • Show that expenses are lower than standard assumptions
  • Increase qualifying income when accepted by the lender

This strategy is most effective for businesses with strong margins and well-documented financials. It does not eliminate expenses, but it can improve how income is calculated.

Which Option Is Better: Business or Personal Bank Statements?

There is no one-size-fits-all answer. The right choice depends on how your income flows and how your business is structured.

Personal bank statements may be a better fit if:

  • You consistently transfer income to yourself
  • Deposits are stable and well documented
  • You want to avoid expense factor reductions

Business bank statements may be a better fit if:

  • Income primarily stays in the business
  • Personal deposits fluctuate
  • A CPA letter can support lower expenses
  • The business shows strong, consistent cash flow

In many cases, lenders will review both options and use the approach that results in the strongest qualifying income.

Common Mistakes to Avoid

Self-employed borrowers often run into issues by:

  • Mixing transfers with income deposits
  • Switching account strategies too late
  • Assuming all deposits count as income
  • Failing to prepare statements in advance

Lenders review deposits carefully to identify transfers, irregular income, and red flags. This process is explained in more detail in our article on how lenders review bank deposits in Colorado.

For additional third-party insight into how bank statement loans differ from traditional mortgages, Bankrate provides a helpful overview.

Final Thoughts

Choosing between business and personal bank statements is not about what looks better on paper. It is about how lenders evaluate cash flow, stability, and risk. Making the right decision early can increase qualifying income and reduce delays during underwriting.

If you are self-employed in Colorado and want help determining which account strategy makes sense before applying, speaking with an experienced non-QM lender early can make a meaningful difference.

Contact Choice Mortgage Group
Email: rbaxter@choicemortgage.com
Phone: (303) 670-0137

For more educational articles on self-employed and non-QM mortgage options, visit our blog:
https://www.cohomesandloans.com/blog/

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