Qualifying Your Income
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For self-employed borrowers, getting approved comes down to one thing: how the lender calculates your qualifying income. Two people who earn the same amount can get very different answers depending on which method is used. These guides cover every approach a non-QM lender might use — bank statement deposits, 1099 totals, asset depletion, and profit-and-loss statements — so you can understand how underwriters arrive at your number and which method gives you the strongest result.
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Frequently Asked Questions
How do lenders calculate income from my bank statements?
On a bank statement loan, the underwriter reviews 12 to 24 months of deposits, removes any that are not business revenue, and applies an expense factor to account for the cost of running your business. The result is your qualifying monthly income. Using business statements often applies a larger expense factor than personal statements, so which you use can change your number.
What is asset depletion and how is it calculated?
Asset depletion turns your savings and investments into a monthly income figure. The lender takes your eligible liquid assets, sometimes after a haircut, and divides by a set number of months. That monthly amount counts as qualifying income, even if you have little or no taxable income. It is built for borrowers who are asset-rich but show low income on paper.
How is 1099 income used to qualify?
On a 1099 loan, the lender uses the income reported on your 1099 forms — typically over one to two years — and applies an expense factor rather than relying on your full tax return. This helps independent contractors and gig workers qualify on close to their gross earnings instead of their written-down net.
Why does my tax return show less income than I really make?
Self-employed borrowers legitimately deduct business expenses, depreciation, and other write-offs that lower taxable income. That is smart at tax time, but it means your return understates your real cash flow. Non-QM programs solve this by qualifying you on deposits, assets, or 1099s instead of your net taxable figure.
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