If you own a business, you already know the problem. The write-offs that lower your tax bill also lower the income a lender sees on your returns. Colorado has a lot of people in that spot. Here is how lenders look at self-employed income in 2026, and when a bank-statement loan makes more sense than a conventional one.
Key takeaways
- About 11.1% of Colorado workers are self-employed, above the national rate of 9.9%, according to Census data.
- Conventional loans usually need two years of tax returns. One year can be enough for a business you have owned for five years or more.
- Bank-statement loans use 12 or 24 months of deposits instead of tax returns, usually with an expense factor applied to business deposits.
- They are generally non-QM loans. Lenders still have to verify that you can repay.
- Start with a conventional loan if your returns support the payment. Use a bank-statement loan when they don't.
Self-employment is common in Colorado
The Census Bureau's 2024 American Community Survey counts about 352,700 self-employed workers in Colorado, roughly 11.1% of employed residents. Nationally the figure is 9.9%. In the congressional district that includes Boulder, the SBA Office of Advocacy reports that 12.1% of private workers are self-employed. That matches what I see: consultants, contractors, guides, physicians in private practice, and owners of shops and restaurants in mountain towns.
The conventional route: tax returns
Fannie Mae considers you self-employed if you own 25% or more of a business. Its Selling Guide says lenders "generally" need "a two-year history of the borrower's prior earnings." One year of returns is allowed when all three of these are true:
- The business has existed for five years.
- You have owned 25% or more of it for those five years.
- The lender completes a cash flow analysis, such as Fannie Mae's Form 1084.
The lender also looks at the trend. Fannie Mae asks lenders to "measure year-to-year trends for gross income, expenses, and taxable income for the business." In practice, rising or steady income is straightforward. Falling income gets a closer look, and the lender may use the lower year or need an explanation.
Lenders work from your net income after deductions, with some items added back, such as depreciation. If your returns show enough income after that, a conventional loan usually offers the best pricing. Our conventional loan page covers the basics.
How bank-statement loans work
A bank-statement loan replaces tax returns with your deposit history. The structure varies by lender, but published programs share a common shape:
- Statements: 12 or 24 months, personal or business. Some lenders accept as few as 3 months in limited cases.
- Expense factor: on business accounts, many lenders count 50% of eligible deposits as income. A letter from a CPA or tax preparer, or a profit-and-loss statement, can support a lower expense factor. Some lenders use a higher factor for expense-heavy industries. Personal statements often count eligible deposits in full.
- Credit: minimum scores around 620 to 660, often higher for larger loans or less money down.
- Down payment: as little as 10% to 20% on a purchase for strong files, more on a cash-out refinance.
- Reserves: around three months of payments is a common floor.
- Debt-to-income: some programs allow up to 50% to 55%.
Here is a simple example. A business account averages $30,000 a month in eligible deposits over 12 months. At a 50% expense factor, the lender counts $15,000 a month as qualifying income. If a CPA letter supports a 30% expense ratio, qualifying income rises to $21,000 a month.
Expect a higher rate than a comparable conventional loan, since these loans carry more risk for investors. How much higher depends on the lender, your credit and your down payment, so compare a quote side by side before deciding.
Two related options
- P&L-only loans qualify you on a profit-and-loss statement prepared or reviewed by a CPA, enrolled agent or tax preparer. They usually require more equity, often 20% to 30% down or more.
- 1099-only loans suit independent contractors. The lender uses your 1099 earnings minus a flat expense factor instead of your Schedule C net income.
Why these are "non-QM" loans
Federal rules require every lender to make "a reasonable and good faith determination" that you can repay, using "third-party records that provide reasonably reliable evidence" of income, under Regulation Z. Bank statements qualify as that kind of record. What bank-statement loans don't follow is the income method in the Fannie Mae, Freddie Mac or FHA guides, so they generally can't be sold to Fannie or Freddie. Lenders make them as non-qualified mortgages, or "non-QM."
Non-QM is not subprime. It has become a large, mainstream part of the market. Non-QM securitizations reached $82 billion in 2026 through August, already above 2025's record, according to Bank of America Securities data reported by National Mortgage News. In July, Optimal Blue found non-QM loans made up more than 10% of rate locks, with bank-statement loans more than 30% of that.
Which route should you take?
- Your returns support the payment: go conventional. It usually prices best, and many programs allow as little as 3% to 5% down on a primary home.
- Your returns don't, but your deposits do: a bank-statement loan can get you there. Plan for a larger down payment and reserves.
- You are new to self-employment: Fannie Mae can consider less than two years if your latest returns show 12 months of income from the current business and you previously earned similar income in the same field.
- You are buying a rental: a DSCR loan qualifies on the property's rent instead of your income.
One planning point: if you expect to buy in the next year or two, talk with your CPA before filing. Taking fewer deductions raises your qualifying income for a conventional loan, though it also raises your tax bill. The right balance depends on the numbers.
What this means for you
I have worked with self-employed buyers in Boulder, Vail and across Colorado for more than 30 years. The ones who have the smoothest closings bring their last two years of returns, a year-to-date profit-and-loss statement and 12 to 24 months of statements on day one. That lets us price the conventional and bank-statement options side by side, so you can see the real tradeoff instead of guessing.
See our bank-statement loan page for program details, or start a pre-approval with Cedar Home Loans and we'll tell you which path fits your file.
Sources
- Fannie Mae Selling Guide — B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower
- Fannie Mae Selling Guide — B3-3.5, Self-Employment Income
- CFPB — Regulation Z, 12 CFR 1026.43, Minimum standards for transactions secured by a dwelling
- U.S. Census Bureau, American Community Survey 2024, Table B24080 (via Census Reporter)
- SBA Office of Advocacy — Colorado Congressional District Profiles (February 2026)
- National Mortgage News — Non-QM securitization record signals secondary market shift (August 31, 2026)
- Optimal Blue — July 2026 Market Advantage report (August 11, 2026)
- Angel Oak Mortgage Solutions — Bank Statement program (example of published terms)
- A&D Mortgage — 12/24 Month Bank Statement program (example of published terms)
