I’m self-employed and worked with a mortgage broker who secured a $150k pre-approval for me via a bank statement loan. Using my last 12 months of bank statements, my monthly income was calculated at $3475. However, my gross income for the year was $94k, with around $30k in expenses. How is this income being calculated?
I have $150k plus $250k from my current home sale for a down payment, but I was hoping for a higher loan amount so I don’t have to use all my cash.
My AGI for 2023 was approximately $55k. If I want to increase my reported income for 2024 taxes, how can I determine how much to show to qualify for a larger mortgage if I switch to a traditional loan?
Edit: My only debt includes a $140/month student loan and two credit cards with $30 minimum payments that I always pay off fully. My credit score is 770.
This question is best suited for your loan officer (LO). Bank statement loans aren’t very common, so finding precise answers relevant to your lender’s guidelines might be difficult. It may be related to how they assess eligible deposits and whether they consider business or personal accounts. Lenders typically count 100% of personal deposits and 50% of business deposits. I recommend asking your LO for clarification on how they arrived at your monthly income.
Traditional mortgages calculate self-employment income based on net income after deductions, adding back depreciation and certain expenses like business miles. If your income increased from 2022-2023, they might average the two years or use just 2023 if it increased significantly. 2024 income won’t be considered until taxes for that year are filed.
Bank statement loans still consider your debt-to-income (DTI) ratio. This is calculated by comparing your debt to your gross income. Typically, lenders want a DTI below 43%, but it can vary. Clarify with your LO if your student loan balance or credit card usage impacts the ratio. Asset-based loans could be another option.
Different lenders have varied ways to calculate ‘adjusted monthly qualified income’ for bank statement loans. They often use 50% of the gross deposits or exclude unsourced deposits. Ask your LO for an explanation of how your $3475 monthly income was calculated.
Bank statement loans often involve applying an expense ratio that reduces qualifying income, sometimes up to 90%. For example, a $100k gross income with a 50% expense ratio would yield a $50k qualifying income. Some lenders may use a CPA’s analysis of your expenses to adjust this figure. The calculation can also depend on business type and expenses like rent or payroll.