If you were turned down for a mortgage after filing your tax returns, it is almost always the same reason: traditional underwriting qualifies you on your net taxable income, not on your revenue or your cash flow. You may have brought in $500,000 and paid tax on $100,000 after write-offs. The bank looks at the $100,000.
The good news is there are six loan types that do not use your tax returns at all. Business bank statement loans, personal bank statement loans, 1099 loans, profit and loss only loans, asset based loans, and no ratio loans. Which one fits depends on how your money actually moves, how much you are putting down, and your credit score.
I get calls and emails about this every day, and the conversation is nearly always the same. Someone tells me their taxes are filed, they went to get a mortgage, and they were told they do not qualify. They make good money. The bank told them they were broke.
Here is what happened. Traditional mortgage underwriting focuses on net taxable income. Not your revenue. Not your cash flow. Not what is sitting in your bank account. Just your net income after everything comes off.
Say your business brought in $500,000 in sales. Then you have your write-offs, rightfully so. Office expenses, travel, vehicles, and everything else that comes with running a business. After all of that, you end up paying tax on $100,000. Your CPA did a great job limiting your tax liability, which is exactly what they should be doing. But for a traditional mortgage, that $100,000 is what the lender qualifies you on.
That is where it breaks down. Your CPA is optimizing for one thing and the underwriter is reading it for another.
These are the alternative documentation loans I actually use with self-employed business owners. Every one of them skips tax returns entirely.
The most popular option, and the one most small business owners fit. Most of you have excellent cash flow, and this loan looks at money coming in rather than what goes out.
We take the last 12 or 24 months of business bank statements, add up the deposits, and divide by the number of months. The lender then applies an expense factor, which maxes out at 50%. What you get depends on your overhead. Own a car lot with heavy overhead and you are looking at a 50% expense factor. Work from home as a consultant with almost no overhead and it might be 10%, which means you could use 90% of your deposits as income.
Best for: business owners with strong, consistent deposits. Minimum 10% down and good credit.
This one is for the solopreneur whose money does not sit in the business account. You have a business account, but almost everything that lands in it gets transferred straight to your personal account. In that case there is often not enough left in the business account for the 50% calculation to work.
Here we can use 100% of the deposits into your personal account. You still have to show at least two months of business bank statements so the lender can see money is coming into that account.
Best for: one-person operations that sweep business income to personal. Second most common alternative doc loan I write.
For independent contractors who take all of their income by 1099. It does not have to be a single 1099. I am working with a gentleman right now who has four. The one rule is they have to be jobs you still have, not former ones.
We go by the most recent year or the most recent two years, and the lender lets you use 90% of the 1099 amount. If you have $200,000 in 1099s for the year, they use $180,000 as your income. That is the whole calculation.
Best for: contractors, commissioned reps, and anyone paid entirely on 1099.
No tax returns and no 1099s. Just a profit and loss statement, typically prepared and signed off by a CPA. It does not have to be a certified public accountant. Any licensed tax preparer works, including someone at a place like H&R Block, as long as they are licensed to prepare returns and they review and sign the statement.
The bar is a little higher here. Usually a 660 credit score minimum and at least 20% down. I have also recently signed up with a lender that allows a borrower prepared profit and loss statement, which is worth asking me about.
Best for: owners with clean books and a tax preparer who will sign off.
No income documentation at all. You are qualified purely on assets. The rule of thumb is you need at least 125% of the loan amount in some kind of account. They will use 100% of what is in checking and savings, and 70% of retirement or brokerage balances, because those fluctuate.
Expect to put down at least 25%.
Best for: people who are asset rich without current income. Recent retirees, someone who just left a W2 career, or an owner who built real savings and is starting a consulting practice.
I call this the nuclear option. You show no income at all. You need a 680 or better credit score and 20 to 25% down, plus proof you can cover six to twelve months of mortgage payments after closing. The rate is high, likely over 8%.
It also works for a cash out refinance, and honestly I do more of those than purchases with it.
Best for: strong credit, real equity or a big down payment, and income that is genuinely impossible to document.
This is the part I wish more of the industry was honest about. The way some wholesale lenders advertise these loans is not the way they actually price out.
You will see a bank statement loan advertised at 10% down with a 700 credit score. That combination does exist. In practice it is the most expensive way to do this loan, because you are asking for the minimum down payment and the minimum credit score at the same time. You end up buying the rate down with points, and doing that runs to roughly 3% of the loan amount.
I am deliberately not putting today’s rates on this page, because they would be wrong within a month. What barely changes is the relationship between your credit score, your down payment, and what you pay. That relationship is what actually decides whether it is worth waiting three months before you buy.
| Your credit | Your down payment | What it does to your pricing |
|---|---|---|
| ~700 | 10% | The worst pricing on the board. Expect roughly 3% of the loan amount in points just to reach a workable rate. |
| ~720 | 10% | About a point better on rate, and closer to one point of cost instead of three. |
| ~760 | 10% | Near the best these programs offer, often with no points at all. |
| ~640 | 40% | Prices similarly to the 760 borrower. The down payment is doing the work the credit score would have done. |
The moral of the story is simple. If you are putting the minimum down, you need excellent credit. If your credit is marginal, you need to bring more money. Strong credit buys you a smaller down payment, and a large down payment buys you forgiveness on credit.
What that means in practice: if you are sitting at a 720 and you can get to 760, that is worth real money on a bank statement loan, usually more than people expect. And if you are at a 640 with equity or savings, do not assume you are out of the running. Ask me to price it both ways before you decide anything.
I say this to people a lot: if you have got great credit or you have got money, there is usually a way to do something. What all of these loans have in common is that they are built for self-employed people with strong cash flow, strong assets, strong credit, or real equity.
That depends on details a webpage cannot see. Where your deposits actually land, how your preparer structured the return, what you have in reserves, and what you are trying to buy. Sorting that out is a short conversation, not an application.
Yes. Six loan types skip tax returns entirely, including bank statement loans, 1099 loans, profit and loss only loans, asset based loans, and no ratio loans. They qualify you on deposits, 1099 totals, assets, or nothing at all rather than net taxable income.
They add up deposits over the last 12 or 24 months, divide by the number of months, and apply an expense factor of up to 50%. A business with low overhead, like a home based consultant, may see an expense factor as low as 10%, meaning 90% of deposits count as income.
The minimum is 10%, but at that level you need excellent credit for the pricing to make sense. With a lower credit score, a larger down payment of 25% to 40% brings the rate down considerably.
Not specifically a CPA. Any licensed tax preparer can prepare and sign the profit and loss statement. Some lenders now allow a borrower prepared statement as well.
Possibly. An asset based loan qualifies you on savings and investments, requiring roughly 125% of the loan amount in assets. A no ratio loan requires no income documentation with a 680 credit score, 20 to 25% down, and six to twelve months of payments in reserve.
No. A conversation about which option fits requires no application and no credit pull.
Related: Should you claim more income to qualify? · How much income do you actually need? · Bank statement loans · 1099 mortgage options
Send me the situation and I will tell you which of these actually fits, or tell you honestly if none of them do. There is no pressure and no application required to start a conversation.
Talk to ScottScott Hastings, NMLS #926762. Mortgages by Scott, a division of Arbor Financial, NMLS #236669. Licensed in NC, SC, FL, GA, VA, AR, IN, MD, MO, MT, NH, NV and PA. This is not an offer to lend. Rates, terms and guidelines change, and any figures shown depend on credit, equity, occupancy and other factors. Consult a mortgage professional about your specific situation. Equal Housing Lender.
