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.
Can the expense factor be reduced?
Often, with a CPA letter stating your actual expense ratio. If your business genuinely runs at 20% expenses rather than a default 50%, that letter can lift qualifying income materially — usually the cheapest documentation win available.
Is the factor the same on business and personal statements?
No. Personal statements holding business deposits are frequently credited at or near 100%, while business statements attract the expense factor. Which account you deposit into can change your qualifying income.
Related questions
If this came up, these usually do too — the short answer to each, with a link to the full breakdown:
- How do lenders calculate self-employed income?On a conventional loan, lenders start with your net profit from two years of tax returns, add back non-cash expenses (depreciation,…
- Can I get a mortgage without tax returns?Yes, through non-QM loans. Bank statement loans qualify you on 12–24 months of deposits, P&L-only loans on a CPA-prepared profit-and-loss…
- Do I need two years in business for a bank statement loan?Usually two years, but not always. Most bank statement lenders want a two-year self-employment history and 12–24 months of statements, yet…
- Can my LLC buy the house I'm going to live in?Generally no. Conventional, FHA, VA and USDA loans must close in the name of a person, not an LLC. Mortgages that do close in an LLC — like…
- Do bank statement loans use business or personal bank statements?Either, and the choice changes your qualifying income. Personal statements (with business income deposited to them) are often credited at…
Sources
- CFPB — Consumer Financial Protection Bureau
- IRS — Self-Employed Individuals Tax Center
- IRS — About Schedule C (Form 1040)
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.