Short answer: Lenders usually average 12–24 months of qualifying bank statement deposits and then apply an expense factor (a percentage haircut) to those average monthly deposits to produce qualifying income.

How it works, step by step:
- Statement period: Lenders commonly request 12 or 24 months of personal and/or business bank statements. They may accept a mix depending on the program.
- Qualifying deposits: They total recurring, business-related deposits (gross deposits for a self-employed borrower or business account deposits). Excluded items commonly include non-recurring large deposits, transfers between accounts, and clearly non-income items (refunds, gifts if documented, etc.).
- Monthly average: The lender computes an average monthly deposit by dividing the total qualifying deposits by the number of months provided.
- Expense factor (haircut): Lenders apply an expense factor to that average to account for business operating costs and owner’s draws. This reduces the raw deposit average to a conservative net income figure used for qualifying.

Typical expense-factor practices:
- Expense factors generally fall in a range (many lenders use a percentage between roughly 25% and 50%), with higher haircuts for business accounts and lower for personal accounts or very established operations.
- Some programs differentiate: e.g., apply one factor to business account deposits and a different one to personal deposits, or allow documentation of recurring expenses to reduce the haircut.
- Lenders may also accept profit-and-loss statements, tax returns, or a CPA letter to adjust the income calculation.

What you should provide and expect:
- 12–24 months of complete bank statements, explanations for large/one-off deposits, and sometimes a business ledger or P&L.
- Qualification based on the post-haircut monthly income; underwriting practices and exact percentages vary by program and lender.

**Bank deposits are typically analyzed over a 12- or 24-month period, with lenders calculating average monthly deposits to determine qualifying income.**

For bank statement loan programs, underwriters review your business or personal bank account statements (depending on the program) and total all deposits during the review period. They then divide by the number of months to establish your average monthly income.

**The Expense Factor Application:**

Lenders apply an expense factor ranging from 25% to 50% to account for business costs that aren't separated in your bank statements. This percentage represents the estimated overhead, supplies, and operating expenses embedded in your deposits.

Here's how it works in practice:

• **Personal bank statements** (self-employed individuals depositing income personally): Typically 25-50% expense factor

• **Business bank statements**: Generally 50% expense factor, since business accounts contain more operational expenses

• **Calculation example**: If your average monthly deposits are $10,000 with a 50% expense factor, your qualifying income would be $5,000/month

**What Gets Counted:**

• All deposits (transfers, checks, cash, electronic payments)
• Consistent patterns matter more than occasional large deposits
• Non-income items like transfers between your own accounts may be backed out

**What Affects Your Expense Factor:**

The specific percentage applied depends on your industry, business structure, and the lender's program guidelines. Self-employed professionals like consultants or contractors often receive more favorable factors than businesses with higher overhead costs.

Some programs allow CPAs to prepare a profit-and-loss statement from your bank statements to potentially demonstrate a lower actual expense ratio, which can increase your qualifying income and improve loan amounts.

For a bank statement loan, lenders calculate your qualifying income by analyzing your business bank statements and applying an expense factor. They typically average the total eligible deposits over a 12 or 24-month period and then apply a standard expense factor, often 50%, to determine your final income figure.

To calculate the deposit total, an underwriter will review each statement to identify consistent, business-related income. The goal is to create a clear picture of your company's gross revenue.

Here’s what they generally look for and how they are treated:

* **Eligible Deposits:** Regular deposits from clients, sales, and other normal business operations are added together. Lenders want to see a consistent pattern of revenue.
* **Ineligible Deposits:** Certain deposits are excluded from the calculation to avoid inflating your income. These commonly include:
* Transfers from other personal or business accounts.
* Large, one-time deposits that are out of character for your business (e.g., a personal loan from a relative, a tax refund, or the sale of an asset).
* Any deposits that cannot be clearly identified as business revenue.

Once the average monthly deposit total is established, the expense factor is applied. A 50% expense factor is a common industry standard. For example, if your business averages $20,000 in eligible monthly deposits, a 50% expense factor would result in $10,000 of qualifying monthly income.

Some lenders may allow for a lower expense factor (e.g., 25-35%) if you can provide a detailed Profit & Loss (P&L) statement prepared by a third-party tax professional, like a CPA. This document must justify that your actual business expenses are lower than the lender's standard assumption. This can be a powerful way to increase your qualifying income and borrowing power.