If you’re self-employed, you’ve probably faced some frustrating challenges trying to qualify for a mortgage. Traditional lenders want to see W-2 income, tax returns, and stable pay stubs—things many entrepreneurs, freelancers, and independent contractors don’t always have in a conventional sense. But now, there’s a powerful solution: a bank statement loan that allows self-employed individuals to qualify for a home loan with as little as 5% down.
Why Traditional Loans Don’t Work for the Self-Employed
The typical conversation between a self-employed buyer and a mortgage broker often starts like this:
“Juan, I run a successful business, I have great revenue, but my taxes don’t look so good.”
That’s because many business owners reinvest heavily or write off business expenses to reduce their taxable income. While this is smart tax-wise, it can hurt your chances of qualifying for a mortgage using traditional lending guidelines.
What Is the Bank Statement Loan?
The bank statement loan isn’t exactly new, but it’s recently been updated to include more flexible down payment options. As Phoebe explains, this loan is designed for those who deposit strong monthly revenue into their business or personal accounts, even if their tax returns don’t reflect high income.
This program uses 12 to 24 months of bank statements to calculate qualifying income—rather than W-2s or tax returns. What’s exciting is that recent updates now allow qualified borrowers to put down just 5% for a primary residence—a significant drop from the previous 10–20% requirement.
Can You Use It for a Multifamily Property?
Yes, but with some rules. If you’re thinking about buying a fourplex and living in one of the units, you can still qualify with 5% down. However, you must owner-occupy the property and not own another single-family home elsewhere.
If you want to use this loan for a 2–4 unit property, the down payment requirement increases to 10%, and rental income from the other units can help you qualify—as long as it’s no more than 75% of market or actual rent.
What’s the Catch?
Naturally, there’s always a trade-off. With these flexible requirements come higher interest rates. While traditional loans offer lower rates to W-2 earners, the bank statement loan might carry a rate like 7.625% on a 30-year fixed mortgage (as of March 2025), depending on credit score, down payment, and whether you choose to include or exclude PMI (Private Mortgage Insurance).
But for many self-employed individuals who can’t qualify the traditional way, this option may be their only path to homeownership.
How Does the Income Calculation Work?
Lenders analyze 12–24 months of bank statements, depending on the strength of your application. Using this data, they calculate average monthly deposits and apply an expense factor (usually around 25%) to estimate your net income.
Here’s an example:
- Monthly deposits: $10,000
- Expense factor: 25%
- Qualifying income: $7,500/month
Your total monthly mortgage payment—including taxes, insurance, and PMI—must not exceed 50% of your qualifying income. Consumer debt is also factored into this ratio.
Can You Use Business and Personal Bank Statements?
Yes. Some self-employed people receive income in both business and personal accounts. As long as you’re not transferring money back and forth to double count it, lenders can consider both sets of statements.
The more separation between your personal and business finances, the easier it is for lenders to calculate your true income. It’s recommended to keep deposits clean and consistent during the review period.
Does This Work Outside of California?
Yes, Phoebe can originate these loans in multiple states. While availability varies, she encourages interested buyers to reach out and check if their state is on the list. If your business is portable and you plan to owner-occupy a home in another state, this loan may still be a viable option.
What Types of Buyers Qualify?
While it’s aimed at business owners, this program also works for 1099 independent contractors—such as freelancers, real estate agents, artists, consultants, and more. If you’re paid without a W-2 and file a Schedule C, this might be for you.
Final Thoughts
The updated bank statement loan offers a powerful opportunity for self-employed and 1099 earners who otherwise wouldn’t qualify for a traditional mortgage. With just 5% down required for a single-family residence and a flexible income evaluation process, it’s become one of the most attractive non-traditional loan options on the market.
While the interest rate is higher and PMI may apply, for many buyers, it’s the only option that lets them turn their business income into homeownership.
Interested in learning more? Reach out to Phoebe Todorof at Sage Trust Mortgage to see if this program is right for you. And remember to subscribe to Juan Huizar’s YouTube channel for more real estate tips and expert interviews.
