Many self-employed buyers are approved for a smaller loan than their income supports. One solution that may unlock more borrowing power is a bank statement mortgage.
Last updated Oct. 10, 2026. · Reviewed by William Cook, NMLS #1048392 ·
A bank statement loan is a type of non-QM mortgage (non-Qualified Mortgage) that lets you qualify using 12 or 24 months of bank deposits instead of tax returns. Rather than looking at your net taxable income, the lender averages your deposits and subtracts a standard expense factor for your industry to arrive at your qualifying income.
This exists to solve one specific problem: your tax return doesn't reflect your real income. That's common if you own a business, work as a 1099 contractor, or draw commission income, since deductions and reinvestment lower the income that shows up on paper. Colorado has a lot of contractors, consultants, and small business owners, so this situation comes up constantly here, especially around Denver and Boulder.
See below how a $160,000 earner is underwritten two different methods:
The gap exists because a CPA's deductions are based on your actual write-offs, which can run well past what a lender's flat expense factor accounts for. The expense factor itself depends on your industry: a consultant with low overhead might see 10% to 15%, while a contractor operating trucks and crews might see 40% or higher.
The choice between 12 and 24 months usually comes down to rate and consistency. Lenders often price 24-month programs slightly better, but you'll need at least two years in the same line of work to qualify for one. If you've been self-employed for a shorter stretch, the 12-month program is usually your only option.
The result is earnings that are genuinely strong on paper look weak to a conventional loan underwriter. This shows up often in competitive markets like Denver Central, Cherry Creek, Boulder's Table Mesa, and Mapleton Hill, where that mismatch can shrink your buying power or slow down your approval.
Bank statement loans work well for self-employed professionals whose work generates consistent deposits, even when the paperwork doesn't show it:
If your CPA maximizes deductions to manage your tax bill, a bank statement loan is usually still your best option. Although, a CPA-prepared profit and loss statement mortgage tends to work better instead when your bookkeeping is clean and your deposit history is inconsistent. The reason is the program relies on your P&L rather than month-to-month deposit averaging.
Explore other self-employed mortgage options in Colorado
Diego runs his own construction business. No employees, no office lease, just him and his crew of sub-contractors. His tax return looks thin once his vehicle and equipment write-offs come out, even though his bank deposits tell a completely different story.
Solution: Using 24 months of bank statements, the lender averaged his deposits and qualified him for a home near Wash Park without asking him to change how he does his books.
Samantha owns a small design studio in LoDo with three employees and a leased office space. The business brings in steady revenue, but reinvesting in staff, software, and rent keeps her taxable income low enough that a conventional lender turned her down.
Solution: Twenty-four months of business bank statements showed her actual cash flow. That was enough for her to qualify for a condo loan without changing how she runs the business.
Check our bank statement calculator to see what your monthly income is to afford a home in Colorado.
Bank statement loans are designed to work around tax-return limitations, but they come with their own underwriting quirks that trip up applicants in three common ways:
Most bank statement loan denials come down to deposit patterns that are hard for an underwriter to verify income. Keeping your business income in one dedicated account and avoiding large unexplained transfers goes a long way toward a clean approval.
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Resources: • Colorado Dept of Labor and Employment. Self-Employment Data • Colorado Dept. of Local Affairs. Demographics