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Declining Income on Bank-Statement Loans: Reading the Trend Before Underwriting Does
Oct 16, 2026 · Varaxon Technologies LLC d/b/a StatementReady
This is educational, not underwriting guidance. Rules below are quoted from specific lender documents as published when checked. Always use the current guidelines for your program.
A 12- or 24-month average hides direction. A borrower whose deposits fell all year can average the same as one whose deposits rose all year, and underwriters know it. Most programs build a trend test into the calculation, and a decline can lower the qualifying figure or end the file.
Here's how published guidelines classify trends and what they require.
Three trend categories
Arch Mortgage Funding's calculator instructions and Newfi's correspondent NQM matrix use similar categories, with one important difference at the bottom.
| Trend | Arch Mortgage Funding [1] | Newfi Correspondent matrix (eff. Jan 13, 2025) [2] |
|---|---|---|
| Stable or increasing | Average over the required documentation period | Amounts should be averaged |
| Declining but stable | Can't be averaged using a previous higher level; the lesser level must be used. The underwriter analyzes the rate of decline and must determine income has stabilized. | If the 24-month average shows a decline but the most recent 12 months have stabilized, with no reason to think income or employment will change, the most recent 12-month average may be used |
| Significant decline / declining | Over 20% from the previous higher level triggers a thorough review (see below) | Declining income is ineligible |
Arch's "more than 20%" review
When income has declined by more than 20% from its previous higher level, Arch's instructions require the underwriter to do a thorough review of whether it can be used, assessing the effect on ability to repay and the likelihood of continuance. Requirements [1]:
- a letter of explanation from the borrower detailing the reason for the decline
- the underwriter must determine income has stabilized at its current level and give written justification for using it
- if it's supported, the lower income level is used for qualifying
The built-in comparison windows
Even without a dramatic decline, the recent window can set the number:
- Arch: 12 months vs. most recent 6; 24 months vs. most recent 12. The lower is used. [1]
- Plaza: for the 24-month option, the lower of the 24-month figure or the most recent 12 months. The most recent bank statement must also be consistent with qualifying income. [3]
How to measure the decline
There isn't one universal formula in the documents above, so ask your underwriter how they measure it. A common way to frame it for a 24-month file:
Decline % = (Prior-period monthly average − Recent-period monthly average) ÷ Prior-period monthly average
Illustrative example: business statements, 100% owner, 50% expense factor.
| Period | Eligible deposits | Monthly income |
|---|---|---|
| Months 1–12 (older) | $300,000 | $12,500 |
| Months 13–24 (recent) | $228,000 | $9,500 |
| 24-month average | $528,000 | $11,000 |
- Decline: ($12,500 − $9,500) ÷ $12,500 = 24%
- Under Arch-style rules, that's over 20%: thorough review, borrower LOE, a stability finding, and qualifying at the lower level ($9,500) if it's allowed at all. [1]
- Under Newfi-style rules, the file may use the recent 12-month average if it has stabilized; a continuing decline is ineligible. [2]
Run the same check on quarters within the recent year. If months 19–24 are lower again than months 13–18, it's hard to argue income has stabilized.
What helps a declining-income file
- A specific LOE. "Lost a major client in March; replaced by two new contracts starting in June," with evidence, not "business was slow." See article 09.
- Evidence of stabilization. The most recent months running flat or up.
- Contracts or invoices for the current run-rate.
- Program choice. A 12-month program may avoid an older, higher period being compared at all, but most lenders still check a recent window. See article 06.
What doesn't help
- Averaging over a longer period to hide the trend. Arch says declining income "cannot be averaged using a previous higher level." [1]
- Leaving out a low month. Programs want consecutive statements.
Sources (checked 2026-10-15)
Lender rules as published on the sources_verified date; check the current guide before relying on them.
- Arch Mortgage Funding, Bank Statement Income Calculator (XLSX, © 2026), Calculation Instructions tab, linked from https://mortgage.archgroup.com/arch-mortgage-funding/calculators/ (file: https://mortgage.archgroup.com/wp-content/uploads/sites/4/MCUS-1531AMF-23J-AMF-Bank-Statement-Income-Calculator.xlsx)
- Newfi Correspondent, Delegated Plus NQM Product Matrix, effective January 13, 2025 (PDF): https://newficorrespondent.com/wp-content/uploads/2025/01/Correspondent-Delgated-Plus-NQM-Product-Matrix.pdf
- Plaza Home Mortgage, Solutions Non-QM 1 Product Snapshot (PDF, © 2025): https://www.plazahomemortgage.com/DownloadFile.aspx?FileName=Solutions+Non-QM+1+Product+Snapshot.pdf&FilePath=%5CDocuments%5CPlazaPrograms%5CSolutions+Non-QM+1+Product+Snapshot.pdf
Sources 2–3 are correspondent or product documents. Wholesale (broker) guidelines from the same companies may differ.
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