What is an expense factor on a bank statement loan?
The full answer
Bank statement loans don't use your tax return; they total 12–24 months of deposits and discount them by an expense factor to estimate what's left after business costs. The default factor is commonly 50% for business statements and higher (often 50–60%) for personal statements, where business and personal money are harder to separate.
Because the factor directly determines your qualifying income, it's one of the highest-leverage parts of a bank statement file. If your actual business margins are better than the default — say your real expenses are 30% — a CPA letter certifying that can lower the factor, sometimes adding tens of thousands of dollars to your qualifying income.
When you compare bank statement lenders, compare their default expense factors and whether they accept a CPA expense letter, not just the rate.
Related questions
- How do lenders calculate self-employed income?
- Can I get a mortgage without tax returns?
- Do I need two years in business for a bank statement loan?
Sources
Educational information only — not financial advice, and not a quote, pre-approval, or offer of credit. Program rules and ranges are illustrative and vary by lender. Mortgage Merlin is a publisher, not a lender or broker.