- Qualify for a Texas jumbo loan using your business's true cash flow, not just your adjusted gross income.
- Bank statement loans offer a clear path to homeownership for successful self-employed individuals.
- Understand specific requirements for down payments, documentation, and interest rates for these unique loans.
The Problem with Traditional Jumbo Loans for Business Owners
As a successful self-employed professional in Texas, you play the tax game smart. You hire a great CPA, take legitimate deductions, and minimize your taxable income. While this strategy is excellent for your business's bottom line, it creates a major roadblock when applying for a traditional jumbo loan. Lenders for these loans primarily rely on your Adjusted Gross Income (AGI) from your tax returns to determine your ability to repay.
When you write off expenses for equipment, marketing, travel, and salaries, you significantly lower your AGI. A lender might see a business that grossed $800,000 but only netted $150,000 after deductions. Based on that $150,000 figure, you may not qualify for the luxury home you want in Austin or Dallas, even though your business cash flow is incredibly strong. This system effectively penalizes you for sound financial management. Fortunately, there's a better way.
Bank Statement Loans: Your Path to a Texas Jumbo Loan
A bank statement loan is a type of non-qualified mortgage (Non-QM) designed specifically for borrowers like you. Instead of scrutinizing your tax returns, lenders use your business bank statements to verify your income and cash flow. This approach provides a more realistic picture of your financial health, allowing your actual business revenue to work in your favor.
How Lenders Calculate Your Income
The calculation for a bank statement loan is straightforward and focuses on your real cash flow. Underwriters will typically ask for 12 or 24 months of consecutive business bank statements. Here is the process:
- Total Deposits: They add up all the business-related deposits over the chosen period (12 or 24 months).
- Apply an Expense Factor: The lender applies a standard 'expense factor' to account for business operating costs. This percentage, often around 50%, is subtracted from your total deposits. The specific factor can vary based on your industry and the lender's guidelines.
- Determine Qualifying Income: The remaining amount is divided by the number of months (12 or 24) to arrive at your monthly qualifying income.
Example: Let's say your business bank statements show an average of $60,000 in deposits each month for the last 12 months.
- Total Annual Deposits: $60,000 x 12 = $720,000
- Apply 50% Expense Factor: $720,000 x 0.50 = $360,000 in assumed expenses
- Annual Qualifying Income: $720,000 - $360,000 = $360,000
- Monthly Qualifying Income: $360,000 / 12 = $30,000
This $360,000 annual income figure is what the lender uses for qualification, a much more favorable number than what your tax returns might show.
What Underwriters Analyze in Your Bank Statements
Lenders look beyond the total deposit amount to assess the stability and health of your business. They are looking for consistency and responsibility. Be prepared for them to analyze:
- Consistent Revenue: They want to see a predictable and stable flow of income without major, unexplained fluctuations month to month.
- Number of Deposits: A healthy number of deposits can indicate a broad and active client base.
- Overdrafts and NSFs: Frequent overdrafts or non-sufficient funds (NSF) transactions are major red flags, suggesting poor cash management.
- Large, Unusual Deposits: One-time, large deposits that are out of character for your business will need to be sourced and explained. For example, a loan from a family member will likely be excluded from the income calculation.
- Average Daily Balance: A strong average balance shows that the business is liquid and not operating on a shoestring budget.
Using a Profit & Loss (P&L) Statement for Qualification
In some cases, a Profit & Loss (P&L) statement can be used, often in conjunction with bank statements. A P&L prepared by a licensed Certified Public Accountant (CPA) can sometimes be used to argue for a lower expense factor than the lender's standard percentage. For instance, if your CPA can verify that your business's true expense ratio is only 30%, the lender might use that figure instead of their default 50%, resulting in a higher qualifying income for you. This often requires a formal letter from your CPA confirming the accuracy of the P&L.
Down Payment Requirements for Texas Bank Statement Jumbo Loans
Because bank statement loans are considered higher risk by lenders, the down payment requirements are typically more stringent than for conventional loans. While you might secure a traditional jumbo loan with 10% down, expect to need more for a bank statement loan.
- Typical Range: Expect a down payment of 20% to 30%.
- Best Case Scenario: Borrowers with very high credit scores (740+), significant cash reserves, and a low debt-to-income ratio may qualify with as little as 10% down with some specialized lenders.
For a $1.5 million home in a Houston suburb, a 20% down payment would be $300,000. It's crucial to have these funds liquid and ready before you start the application process.
Are Interest Rates Higher on Bank Statement Loans?
Yes, you should expect the interest rate on a bank statement jumbo loan to be higher than a traditional, tax-return-based jumbo loan. The lender is taking on additional perceived risk by not using standard income verification methods, and the higher rate compensates for that risk.
The difference can range from 0.5% to 1.5% higher than prevailing conventional jumbo rates. The exact rate will depend heavily on your credit score, the loan-to-value (LTV) ratio, your DTI, and the total loan amount.
How to Prepare Your Financials for a Smooth Approval
To ensure the best chance of a quick and successful approval, meticulous preparation is key. Take these steps before you apply:
- Separate Your Finances: If you haven't already, completely separate your business and personal bank accounts. Co-mingling funds is a major underwriting headache and can lead to denial.
- Gather Your Statements: Collect and organize at least 24 full months of business bank statements. Make sure you have every single page, including blank ones.
- Clean Up Your Accounts: For 3-6 months before applying, avoid any overdrafts. Pay all your bills on time to maintain a strong credit score.
- Source Large Deposits: If you receive an unusually large deposit, keep a paper trail explaining its source. Be ready to provide this documentation to the underwriter.
- Consult Your CPA: Have your CPA prepare a year-to-date P&L statement. This can be a valuable supporting document.
Can I Use Business Funds for My Down Payment?
Yes, using funds from your business account for the down payment and closing costs is often allowed for self-employed borrowers. However, it is not as simple as just writing a check. The lender needs to ensure that this large withdrawal will not harm the ongoing operations of your business.
To get this approved, you will almost certainly need to provide a letter from your CPA. This letter must state that the withdrawal of funds for the home purchase will not have a negative impact on the business's stability and future operations. The lender will review your business's liquidity post-withdrawal to confirm it can still cover its typical expenses.
If you're a self-employed Texan struggling with traditional loan denials, exploring a bank statement jumbo loan could be your key to homeownership. Connect with a mortgage strategist who specializes in these products to review your specific financial picture and find the right lender for your goals.
Your strong business cash flow tells the real story of your success. If you're ready to use it to secure your dream home, take the first step and Apply now to see what you qualify for.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping self-employed clients with unique financial situations. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for clients using bank statements and asset-based income. Praised for exceptional customer service, David has guided hundreds of families to the mortgage they deserve.
