The Basic Formula
Eligible Deposits − Expense Adjustment = Qualifying Income- Add up all eligible deposits over the statement period (12 or 24 months)
- Subtract ineligible deposits (transfers, loans, gifts, etc.)
- Apply an expense factor if using business statements
- Divide by the number of months to get average monthly income
Example Calculation
A borrower submits 12 months of business bank statements showing $600,000 in total deposits. The lender identifies $50,000 as ineligible transfers and applies a 50% expense factor.| Step | Calculation |
|---|---|
| Total deposits | $600,000 |
| Less ineligible deposits | −$50,000 |
| Net eligible deposits | $550,000 |
| Less 50% expense factor | −$275,000 |
| Adjusted annual income | $275,000 |
| Monthly qualifying income | $22,916 |
Personal vs Business Statements
Personal bank statements typically use a low expense factor (0-10%) since deposits are assumed to be after-expense income. Business bank statements use higher expense factors (30-50%) because revenue includes money that goes toward operating costs.What Counts as a Deposit
Eligible: Business revenue, client payments, accounts receivable, regular income patterns. Ineligible: Transfers between your own accounts, loan proceeds, gift funds, tax refunds, one-time asset sales, insurance claims. Large or irregular deposits require explanation and documentation.Expense Factors by Business Type
| Business Type | Typical Expense Factor |
|---|---|
| Professional services / consulting | 10-30% |
| Real estate agents | 20-40% |
| Contractors / tradespeople | 30-50% |
| Retail / restaurants | 40-60% |
Maximizing Your Qualifying Income
- Use the statement period (12 vs 24 months) that shows higher average deposits
- Ensure all legitimate income flows through the accounts you’re submitting
- Minimize account-to-account transfers that get flagged as ineligible
- Provide documentation to justify a lower expense factor
- Shop lenders—calculation methodology varies and small differences add up