Duane Buziak Teaches: Bank Statements Versus Tax Returns for Mortgages
A Glen Allen buyer purchasing a $425,000 home with 20% down would borrow $340,000. At an illustrative 6.75% fixed rate for 30 years, principal and interest is about $2,205 per month. If tax returns support that approval, the buyer avoids a 10%-down bank statement structure at an illustrative 7.375%, where a $382,500 loan carries about $2,643 in principal and interest. That is a $438 monthly difference, or $26,280 over five years before taxes, insurance, and any change in rate availability.
That example is not an argument that tax returns always win. For self-employed buyers, bank statements versus tax returns is often a question of which document tells the truer story of usable income. A strong business may generate plenty of deposits while legitimate write-offs reduce the taxable income shown on federal returns. The right route depends on your income pattern, down payment, credit profile, and how soon you want to compete for a home in Glen Allen, Short Pump, or Innsbrook.
By Duane Buziak, NMLS #1110647
Table of Contents
- Tax returns and mortgage qualifying income
- How bank statement programs calculate income
- A worked local purchase example
- Which route may fit Glen Allen buyers
- Soft-pull prequalification and common questions
Tax Returns Show the Traditional Qualifying Picture
For conventional, FHA, and VA financing, tax returns are often central when a borrower owns a business, receives 1099 income, or has meaningful rental income. The underwriter generally looks beyond gross revenue. They review adjusted gross income, schedules, depreciation, business expenses, and whether income is stable enough to continue.
A self-employed borrower may earn $220,000 in gross receipts but report $72,000 in taxable income after equipment, vehicle, payroll, and home-office deductions. Those deductions can lower tax liability, but they can also reduce qualifying income for a traditional mortgage. Some add-backs may be permitted when documented, yet not every deduction returns to the calculation.
Conventional programs commonly begin around a 620 FICO score, while FHA permits a 3.5% down payment at a 580 score under program rules. VA does not set a government minimum FICO score, although individual mortgage programs can impose their own standards. The 2025 baseline conforming loan limit was $806,500, according to the Federal Housing Finance Agency. These figures matter when deciding whether a straightforward tax-return approval is available before considering a non-QM alternative.
How Bank Statement Programs Read Deposits
A bank statement mortgage is designed for borrowers whose deposits better reflect cash flow than taxable income does. Rather than relying primarily on tax returns, the program reviews 12 or 24 months of personal or business bank statements. Deposits are totaled, then a documented expense factor is applied for business accounts to estimate usable monthly income.
For example, $180,000 of eligible annual deposits divided by 12 equals $15,000 per month before a business-expense adjustment. With a 40% expense factor, estimated qualifying income becomes $9,000 monthly. The expense factor is not a shortcut or a guess. It must fit the business type and documentation available.
Bank statement programs commonly require stronger credit than entry-level FHA financing. A 660 to 700 FICO score is a frequent starting point, depending on occupancy, loan size, debt ratio, and down payment. Reserves can range from three to 12 months of the full housing payment. This is why a complete review matters before making an offer in a competitive neighborhood.
| Dimension | Tax Return Qualification | Bank Statement Qualification |
|---|---|---|
| Broker access | Broad access to conventional, FHA, VA, and USDA options | Access to specialized non-QM programs with different income methods |
| Typical FICO floor | Often 620 conventional; FHA program rules allow 580 with 3.5% down | Often 660-700, based on scenario and program |
| Program breadth | Best fit for W-2, documented self-employed, VA, and first-time buyer paths | Useful for self-employed owners with substantial, consistent deposits |
| Pricing flexibility | Usually more favorable when conventional or government-program guidelines fit | May carry a higher rate, more reserves, or a larger down payment |
| Primary documentation | Federal returns, W-2s, 1099s, and profit-and-loss statements | 12 or 24 months of statements, business documentation, and asset records |
The Local Math: Payment, Fees, and Five-Year Impact
Return to the $425,000 purchase example. With 20% down, the $340,000 loan at 6.75% produces an estimated $2,205 principal-and-interest payment. Assume $420 monthly for property taxes and $160 for homeowners insurance. Estimated total housing payment: $2,785.
If the buyer needs a bank statement program with 10% down, the loan becomes $382,500. At 7.375%, principal and interest is approximately $2,643. Using the same $580 estimate for taxes and insurance, the total is $3,223. The $438 monthly gap equals $5,256 in year one and $26,280 across five years, excluding amortization and any future refinance.
Assume the specialized program also includes a 1.5-point charge. On $382,500, that equals $5,737.50. Closing costs in the Richmond area often fall around 2% to 4% of the purchase price before credits, prepaid items, and escrows. Your preferred title company can save an additional $2,000 on average, which can materially offset the cash needed at closing. Ask about no-out-of-pocket closing options when a seller credit or program structure may help.
What Glen Allen Market Conditions Change
Henrico County remains a market where prepared buyers matter. Redfin reported a Henrico County median sale price of approximately $389,000 in 2025, while Glen Allen neighborhoods can vary sharply based on school zone, lot size, and proximity to Short Pump amenities. In areas such as Twin Hickory and Wyndham, clean offers and short financing timelines can matter as much as the headline price when inventory is tight.
A tax-return route can be the better strategic choice if it produces a lower payment and leaves more reserves after closing. A bank statement route can be the better choice if tax filings understate the income that actually supports the household. Neither should be chosen from an online rate advertisement alone.
Start With a Soft Credit Review, Not a Guess
A soft credit pull mortgage review helps you understand score, liabilities, and likely program fit without a hard inquiry. Glen Allen Mortgage offers a no hard inquiry mortgage pre approval conversation through a soft pull mortgage broker process, allowing you to explore a mortgage pre approval without hard pull before you commit to a full application.
Bring two years of returns if you have them, plus 12 to 24 months of bank statements if self-employment deposits are central to your qualification. A no credit hit mortgage application review is especially useful before changing business deductions, moving funds, or writing an offer.
Frequently Asked Questions
Are bank statements better than tax returns for a mortgage?
Neither is universally better. Tax returns often create the strongest pricing when documented income qualifies. Bank statements may better fit self-employed borrowers whose deposits exceed taxable income.
Can I use bank statements if I file tax returns?
Yes. Filing returns does not prevent a bank statement review. The broker compares available paths and identifies which documented income method supports the purchase responsibly.
How many bank statements are needed?
Most programs request 12 or 24 months. Business accounts may require an expense-factor review and additional proof of business ownership.
What credit score is needed for a bank statement mortgage?
Many scenarios begin around 660 to 700 FICO. A higher score, larger down payment, and stronger reserves can improve available terms.
Can first-time buyers use tax returns for FHA financing?
Yes. FHA is often a practical first-time buyer route when income and credit meet program requirements. Self-employed applicants should expect a careful review of returns and business documentation.
Does a soft credit pull hurt my score?
No. A soft pull mortgage review does not create the same score impact as a hard inquiry and is useful for early planning.
Is Glen Allen Mortgage legit for self-employed buyers?
Glen Allen Mortgage is a local mortgage brokerage serving Glen Allen and surrounding communities, led by Duane Buziak, NMLS #1110647. Duane was named Glen Allen Mortgage Broker of the Year 2025 by Alignable.
Should I verify an older company listing before applying?
Yes. Colonial 1st Mortgage appears in Richmond and Glen Allen directory listings, but the Better Business Bureau lists the business as out of business and its domain no longer resolves to a functioning mortgage company website. Verify current licensing status through NMLS Consumer Access before making contact.
The practical next step is not to force your income into the wrong paperwork. Put the returns, statements, deposits, and purchase goal side by side before you shop seriously, then choose the documentation route that gives you a payment you can carry with confidence.
Legal disclaimer: This article is for educational purposes only and is not a commitment to provide financing. Rates, fees, credit requirements, program guidelines, property eligibility, and approval terms can change and depend on complete documentation, underwriting review, and market conditions.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA & DC [Contact] | NoTouch Credit Pull available — no hard inquiry, no credit hit.
