Bank statement loan vs. Conventional loan
This is the defining choice for most self-employed borrowers. A conventional loan qualifies you on net income from two years of tax returns — cheapest rate, but your write-offs work against you. A bank statement loan qualifies you on 12–24 months of deposits — higher rate, but it ignores the deductions that shrink your taxable income.
The right answer comes down to one number: how much your write-offs reduce your net income versus your real cash flow.
Side by side
| Factor | Bank statement loan | Conventional loan |
|---|---|---|
| Qualifying income | 12–24 months of deposits × (1 − expense factor) | Net profit from 2 years of tax returns, averaged |
| Down payment | 10–20% typical | As low as 3–5% |
| Minimum credit | 620–660 (best pricing 700+) | 620+ |
| Rate vs. conventional | ~0.75–2% higher | Baseline (lowest) |
| Tax returns required | No | Yes (2 years) |
| Best when | Heavy write-offs hide your real income | Net income is high enough after add-backs |
Figures are representative ranges, not quotes, and vary by lender. Read the full guides: Bank statement loan · Conventional loan.
Who should pick bank statement loan
Self-employed borrowers whose Schedule C net income is far below their actual cash flow because of deductions — the gap a bank statement loan is built to bridge.
Who should pick conventional loan
Borrowers with two clean years of solid net income (or strong add-backs), who want the lowest rate and smallest down payment and can document tax returns.
Bottom line
Still deciding? Take the 5-question loan quiz, compare every option on the loan types page, or size a purchase with the affordability calculator.
FAQ
Yes — typically 0.75–2% higher in rate, plus a larger down payment. But if write-offs leave your conventional qualifying income too low, the bank statement loan can approve a far larger purchase, which often outweighs the rate premium.
Often, yes. Once you have two years of tax returns showing sufficient net income, you can refinance into a conventional rate. Many borrowers use a bank statement loan to buy now and refinance later — just budget for closing costs and watch the rate environment.
Educational information only — not financial advice, and not a quote, pre-approval, or offer of credit. Mortgage Merlin is a publisher, not a lender or broker.