Six money terms that mean different things
| Term | Plain meaning |
|---|---|
| Business revenue | Money the business earns from sales or services. |
| Bank deposits | Money put into the account. Some may not be revenue. |
| Business profit | Revenue left after business expenses. |
| Taxable income | Income worked out under tax rules. It may include deductions that affect the total. |
| Income the lender can use | The amount the lender accepts under its loan rules. |
| Personal spending cash | Money you can actually use after business needs, taxes, and other commitments. |
Those totals can be different. A strong deposit month does not tell you how much house you can safely afford.
Step 1: Choose the right statement method
The personal method reviews business deposits the lender accepts into your personal account over 12 or 24 months. The reviewed profiles also require two months of business statements to support that flow.
The business method reviews business deposits and accounts for business expenses and ownership. The worksheet on this page uses that method.
An account with your name on it is not always a personal-method account. If business bills and operating activity run through it, the lender may need to analyze it as a business account.
Do not apply the business expense table to a personal-method estimate without first confirming the right route.
Step 2: Remove money that is not eligible revenue
| Deposit type | How to think about it |
|---|---|
| Customer payment for checked work or goods | May count when supported and consistent with the business. |
| Money moved from your personal savings | Adds cash, but does not create a new business sale. |
| Business loan proceeds | Borrowed money, not earned revenue. |
| Transfer between two reviewed business accounts | Trace the source and count the revenue once. |
| Payment-processor settlement | Trace the underlying customer revenue and avoid duplicate counting. |
| Refund, reversal, or unusual credit | Review the source and effect before deciding whether it counts. |
| Another person’s wages | Not your business revenue for this math. |
The label in the bank description is only a clue. Supporting records can show what the deposit really was.
Step 3: Average the eligible deposits
Add deposits that count across the complete review period, then divide by the number of months. Do not use only the best month.
For example, $240,000 in checked deposits that count across 12 months gives an average of $20,000 per month.
If the business is seasonal, the full period helps show that pattern. A busy summer does not mean each month of the year earns the same amount.
If a 24-month review shows a decline, the bank statement section calls for using the latest 12 months. The lender still reviews the trend and whether the income is stable enough to use.
Step 4: Account for business expenses
The standard PennyMac expense table reviewed for these bank statement programs uses business type and staff count:
| Business type | No employees | One to five employees | More than five employees |
|---|---|---|---|
| Service business | Deduct 15% | Deduct 30% | Deduct 50% |
| Product business | Deduct 25% | Deduct 50% | Deduct 85% |
Service examples in the profiles include consulting, accounting, legal work, therapy, insurance, and IT. Product examples include retail, food service, manufacturing, contracting, and construction.
A contractor is not always a low-expense service business just because the work involves a service. The profile’s classification controls.
The business narrative treats owners alone as zero employees. It asks separately about contractors. We need lender confirmation on how a contractor-heavy staffing model is counted before choosing the factor.
The factor used for qualifying is not a promise that your real expenses are that low. Use your actual costs for your own budget.
Step 5: Apply your ownership share
Here is the business-method formula:
Monthly deposits that count × percent left after expenses × your share of the business.
If you own half the company, this method does not give you credit for the other owner’s half.
These profiles require at least 25% ownership for the bank statement route. More than one borrower, business, or account can need a closer review so the same income is not counted twice.
Three examples that make the math clear
All examples are fictional. They assume the business, deposits, method, and ownership are accepted. They are not approvals.
Example 1: A service business with employees
Across the full review period, total deposits average $30,000 a month. That includes $6,000 from owner savings and $4,000 of loan proceeds. The remaining $20,000 is checked customer revenue.
The borrower owns 100% of an eligible service business with one to five employees. The standard expense factor is 30%.
$20,000 × 70% × 100% = $14,000 in monthly income the lender can use.
We did not start with $30,000. We removed the non-revenue deposits first.
Example 2: Same revenue, different costs
Two businesses each have $20,000 of monthly deposits that count. Each borrower owns 100%.
| Business | Standard expense factor | Income estimate |
|---|---|---|
| Eligible consultant with no employees | 15% | $17,000 per month |
| Retail business with one to five employees | 50% | $10,000 per month |
The deposit total is the same. The business model changes the qualifying math.
Example 3: A half owner
An eligible service business has $20,000 in accepted monthly deposits and a supported 15% expense factor. The borrower owns 50%.
$20,000 × 85% × 50% = $8,500 per month.
Using $17,000 would incorrectly give that borrower the entire business’s worked out income.
Can a tax professional support a different expense ratio?
There are outside expense-ratio and profit-and-loss methods with set rules. They are not a way to choose the percent you like best.
The tax professional cannot be related to you or tied to your business. The person must meet the loan rules and must have prepared the business’s last two years of tax returns. The expense factor cannot fall below 15% under these methods.
For the profit-and-loss option, the revenue must reconcile within the stated 10% tolerance to eligible bank deposits. A borrower-prepared report does not qualify for that option.
If your actual expenses differ from the standard table, tell us. We can check whether an accepted outside method fits and what support it needs.
What happens with large deposits, overdrafts or falling income?
These items call for facts, not a better story.
A single deposit above the profile’s monthly qualifying-income threshold needs an explanation with support. It may still be valid customer revenue. The size alone does not decide the answer.
An insufficient-funds event means the account lacked money for a payment. These events have limits. The reviewed business-statement section allows up to three in 12 months. Up to six may fit if none occurred in the latest three months. You must explain the events, cover the shortfalls promptly, and meet the other conditions.
A falling income trend also needs review. The lender is not required to use an old high average when current results no longer support it.
How qualifying income affects the home loan
Once income is established, the lender compares it with the planned housing payment and other monthly debt obligations.
If accepted income is $14,000 and total qualifying monthly debts are $6,300, DTI is 45%.
That math is only one part of approval. Credit, down payment, reserves, property, business history, residual income, and other rules still apply.
Also, $14,000 of income the lender can use does not mean you have $14,000 of spendable cash. Work out your real personal budget before choosing the payment.
Common income-calculation questions
Do lenders use gross or net income for self-employed borrowers?
It depends on the loan method. This business-statement route starts with deposits that count, then accounts for expenses and ownership. A conventional tax-return analysis uses different rules. Neither method simply accepts every gross deposit as personal income.
Is it always 50% of deposits?
No. The reviewed standard expense table ranges from 15% to 85% deducted, depending on the business and staffing. Supported outside methods have their own conditions.
Can owner transfers count as income?
Moving your own savings into the business does not create revenue. Moving already-earned business revenue into a personal account may be relevant under the personal method, with the required support. Trace the source and do not count it twice.
Can I include cash deposits?
Do not assume cash is accepted just because it is in the account. The lender needs support for the source and a clear connection to eligible business revenue.
Will a strong recent month fix a weak year?
Not by itself. The lender uses the required full period and reviews the income trend. One good month is not the same as stable income.
Can this worksheet tell me how much house to buy?
No. It shows one part of the lender’s math. You still need a loan review and a personal budget. Use the payment calculator to explore the next step.
Let’s check the source before trusting the total
Bring the statement period, business type, staffing, share of the business, and any unusual deposits. We can help you see which numbers need support and which income method may fit.
Review your income with Shahram or prepare the document checklist.