Self-Employed Mortgage Guide
Let Us Help You Find the Right LoanSelf-employed Home Loan Programs
Colorado is a prime location for homeownership in growing cities like Boulder, Aurora, and Fort Collins each with its own unique lifestyle. However, if you are self-employed or a business owner, using your income to secure a mortgage can be challenging. Traditional lenders may require tax returns with schedule C or 1120S forms which don’t always reflect your true earnings. That’s where a bank statement loan comes in. This type of loan evaluates your financial stability using bank statements making it an ideal option for Colorado’s self-employed professionals and those with non-traditional income sources.
Here's a common issue self-employed people have: Your most recent tax return shows your net income is substantially lower than your gross income by 50-75% which may affect how much you can afford according to lender guidelines. If you still qualify with the income on your tax returns then applying with traditional documentation may be the best choice. Otherwise, we have great solutions below.
Bank Statement Loans in Colorado
Check out the modern way to calculate income through your bank account.
What Exactly is a Bank Statement Loan?
A bank statement loan is a non-QM mortgage option tailored for self-employed individuals whose income might not fit neatly into traditional verification methods. Whether you're a freelancer, small business owner, or contractor, your income may vary month to month. Rather than relying on tax returns, lenders use personal or business bank statements—typically spanning 12 to 24 months—to assess your average monthly income. This provides a more accurate financial picture, especially for those whose income fluctuates or comes from multiple sources.
How Do Bank Statement Loans in Colorado Work?
Instead of traditional tax documents, lenders focus on your bank deposits to determine eligibility. For personal bank statements, 100% of work-related deposits are typically counted as income while business bank statements usually count 50%.
Bank statement lenders will use a 50% expense factor for business accounts unless you have a letter from a CPA or licensed tax preparer that declares your expenses to be at a lower percentage. Similarly for personal bank accounts the lender’s guidelines may default to 25-30% without an expense factor letter. The minimum expense is 10% for personal checking and business checking accounts.
Your income is calculated by adding the total of all work-related deposits over a 12 or 24 month period minus the expense factor. As an example, if your deposits over 12 months total $120,000, your average monthly income is $10,000 per month. If your profession has an expense factor of 10% your calculated monthly income is $9,000 per month.
This approach works well for borrowers who have solid cash flow but can’t easily verify their income through conventional means. For example, if you're self-employed in Colorado Springs and rely on contract work, a bank statement loan allows you to qualify based on the income deposited into your bank account.
Tip: We may be able to use just 6 months if you have high credit scores and a 30-percent down payment or equity to refinance.Who can benefit from the bank statement loan?
This loan program is designed for a wide range of borrowers who don’t fit into the typical box. Here’s who can benefit the most:
- - Self-employed professionals (freelancers, consultants, contractors, workers paid 1099, sole proprietors, realtors)
- - Business owners (small, medium, and large)
- - Seasonal workers whose income varies throughout the year
- - Real estate investors who have diverse sources of income
- - W2 salaried co-borrower with higher earning self-employed primary borrower
“Some of my past clients who benefited from the bank statement loan were a dentist, attorney, realtor, pharmaceutical sales rep., and a fast healthy food shop owner.” – William Cook, NMLS mortgage originator
Requirements for the bank statement mortgage
Buying: At least 10% down
Refinance: 15% equity or more.
P.I.T.I Reserves : 6-12 months
Occupancy: primary residence, second home, or rental property.
As of Sept. 1, 2024 in order to qualify you will need to satisfy the above.
*1 year self-employment is allowed if you also worked 1 or more years as a salaried person in the same industry you are currently self-employed in now.
*Not Eligible: homes on 20.1 acres or more, zoned rural or agricultural.
- $150k to $3 million— 10-percent down (85 LTV to refinance) with 720 and up credit scores
- $1.5M to $2 million— 15-percent down (80 LTV to refinance) with 680-719 credit scores
- $2M to $3 million— 20 to 25 percent down (75-80 LTV for refi) with 680-699 credit scores
- $3M to $5 million — 25 to 35 percent down (65 LTV for refi) with 720 and higher credit scores
The above is for borrowers with the above FICO credit scores, primary home, and 6-12 months reserves. Lower credit scores or 2-4 units require a higher down payment.
Bank Statement Loans for Refinancing in Colorado
Not only can you use a bank statement loan to purchase a home in Denver, Boulder, or other Colorado cities, but it’s also a great option to refinance your existing mortgage. If your W2 income situation has changed to self-employed since you originally bought your home, refinancing through a bank statement loan may help you secure more favorable terms, access cash-out refinancing options, or lower your monthly payments.
Example of How Bank Statement Loans Help Colorado Borrowers
Meet Sophia. She's a graphic designer from Fort Collins, who has been self-employed for over six years. Like many small business owners, Sophia’s income fluctuates based on client work and her income on her tax returns didn’t accurately reflect her overall earnings. By using a bank statement loan, Sophia was able to present 12 months of personal and business bank statements showing consistent deposits from her design projects. This allowed her to qualify for a loan and purchase a home just in time to expand her business studio.
It doesn't matter which Colorado bank or credit union (or big national bank) you have an account with as long as you have online banking you can access the statements. If you don't bank online, a customer service rep. can still email them to you. We've dealt with all types of challenges. By the way, you may also Schwab or Fidelity brokerage checking accounts to qualify if you deposit your business income in them.
Whether you're looking to purchase a new home or refinance your existing mortgage, bank statement loans offer a solution tailored to your self-employed income situation. Reach out to me today to find out if a bank statement loan is the right fit for you.
1099 Mortgage Loans
A great loan for independent contractors who file a schedule C and want to use their 1099 forms to qualify for a mortgage.
1099 Non-Employee Home Loans
Under this non-QM loan product your most recent 1099 forms from the last year or two are used to verify income with a YTD income document reviewed by the underwriting dept. This loan is a great alternative to bank statement loans when you have 3 months or more of no deposits from your profession. A tax preparer letter is still needed to confirm your business expense ratio.
The requirements for the "1099 loan" are similar to what is required for a bank statement mortgage
The benefits for you are no tax returns and no IRS tax transcripts are used to qualify.
P & L Mortgage Loan
When bank statements show your financial profile negatively,a P&L loan may be the solution.
Profit & Loss Loan Program
Under this non-QM loan product your most recent 1-2 years of profit & loss statements and YTD P&L statement are reviewed by the lender. You should request your profit & loss statements from your tax preparer. Keep in mind there are some business expenses the underwiter adds back in as income unlike your filed tax returns such as specific depreciation, one-time non-recurring expenses, home office and a couple more.
The requirements for the "Profit & Loss" program are similar to the bank statement mortgage. Additional requirements are the borrower needs to own a minimum of 25-percent of the business. The benefits are qualifying without tax returns.
Areas Served
We serve borrowers throughout the state of Colorado which includes these cities:
- Boulder
- Denver
- Colorado Springs
- Fort Collins
- Longmont
- Broomfield
- Castle Rock
- Lakewood
- Englewood
- Centennial
- Parker
- Grand Junction
Disclosure: Minimum loan amount is $150,000 for residential. Loan programs are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.