Mortgages for construction contractors
General contractors, remodelers, electricians, plumbers, and other trades run high-revenue, low-margin businesses with two mortgage headaches: large pass-through costs (materials and subcontractors) and weather-driven seasonality. Both make a strong operator look weaker on paper than they are.
Add heavy equipment depreciation and the picture gets murkier still — which is why contractors benefit more than most from a loan that reads cash flow rather than the bottom line of a deduction-heavy return.
How lenders see a construction contractor’s income
You file Schedule C or a business return and report contract revenue minus materials, subcontractor payments (often issued on 1099-NEC), equipment, and vehicle costs. Net profit can be a thin slice of gross revenue even in a great year. Lenders average two years of that net — so a $600,000-revenue contractor might qualify on $80,000, and a slow winter can drag the average further.
What to document
Underwriters reviewing a construction contractor typically want:
- Two years of tax returns with Schedule C (or 1120-S/1065)
- Year-to-date P&L
- 1099-NEC issued to subcontractors and received from general contractors/clients
- Contractor's license and any bonding documentation (proves continuity)
- Bank statements showing contract deposits
Add-backs that commonly apply
These are paper or non-recurring expenses a lender can add back to your net income — raising your qualifying figure without changing your tax return:
- Depreciation on trucks, trailers, and heavy equipment (often substantial)
- Section 179 / bonus depreciation on equipment placed in service
- Depletion and one-time large purchases documented as non-recurring
- Home-office deduction where applicable
Which add-backs a given lender allows varies. Bring your depreciation schedule and a CPA who can speak to your numbers. See how deductions cut both ways in the write-offs deep dive.
Best-fit loan for a construction contractor
Bank statement loan — Contract deposits reflect real cash flow even when materials, subcontractors, and equipment write-offs flatten your taxable net. A bank statement program reads those deposits after an expense factor, and a CPA letter can lower that factor if your true margins are better than the default.
Worth comparing against:
- Conventional loan (with add-backs) — Equipment-heavy contractors often have large depreciation add-backs that lift conventional qualifying income more than expected — worth calculating before assuming you need non-QM.
- 1099 income program — Subcontractors paid mainly on 1099-NEC by a few general contractors may qualify off those 1099 totals.
Not sure which fits? The 5-question loan quiz and the side-by-side loan comparison narrow it down.
The pitfall to avoid: materials and subs make revenue look like income
How to prepare
- Separate true expenses (materials, subs) from non-cash ones (depreciation); only the latter add back to qualifying income.
- A 24-month bank statement look-back smooths winter slowdowns into a fairer average than a single season.
- Get a CPA expense-ratio letter — contractor margins are often better than the lender's default expense factor, which raises your qualifying income.
- Keep your license and bonding current; lenders use them to confirm the business is active and legitimate.
FAQ
Yes. Thin net profit after materials and subcontractor costs is normal in construction. A bank statement loan reads your deposits, and add-backs for equipment depreciation can raise even a conventional qualifying figure. Don't assume the low net on your return is the end of the story.
Seasonality is expected in the trades. A 24-month bank statement program averages busy and slow months together, and underwriters familiar with construction account for the cycle. Using too short a window that lands in winter is the main risk.
Those payments reduce your net profit (they're a real business cost), which lowers conventional qualifying income. They don't disqualify you — they just argue for a deposit-based loan or a CPA expense letter that reflects your actual margins.
Educational information only — not financial advice, and not a quote, pre-approval, or offer of credit. Rates and ranges are illustrative. Mortgage Merlin is a publisher, not a lender or broker.