Average monthly deposits are the deposits on a borrower's bank statements added up and divided by the number of months. The right figure is the qualifying average, which leaves out transfers, loan proceeds and one-time credits before dividing. The total average counts every credit and is nearly always higher.
Total versus qualifying average monthly deposits
The total average counts every credit on the statements. The qualifying average counts only the credits a lender accepts as income. The gap between them is the work of the review, and it is the number a borrower least expects to see.
A quick look at statements gives the total: add the credits for each month, add the months, divide by the number of months. That is the figure a borrower quotes when asked what they make. An underwriter wants the other one.
How the two figures are built
For each month, three numbers are kept: the total deposits, the deposits excluded and the qualifying deposits, which is the first minus the second. The averages come from summing each column and dividing by the months.
The example table below uses a fictional borrower and six months of invented figures. It shows the 3-month and 6-month averages side by side.
| Month | Total deposits | Excluded | Qualifying deposits |
|---|---|---|---|
| January | $21,400 | $3,000 | $18,400 |
| February | $19,800 | $0 | $19,800 |
| March | $24,600 | $5,500 | $19,100 |
| April | $22,300 | $2,000 | $20,300 |
| May | $26,900 | $4,500 | $22,400 |
| June | $23,000 | $0 | $23,000 |
| 6-month average | $23,000 | $20,500 | |
| 3-month average (Apr to Jun) | $24,067 | $21,900 |
The six month total average is $23,000 and the qualifying average is $20,500, so $2,500 a month of credits is not income. The three month figures are higher in this example because deposits rose. A lender that looks at the last three months will see $21,900; one that looks at all six will see $20,500. The program decides which, and the 12 versus 24 month comparison shows how that choice plays out over longer periods.
Why it matters which average you quote
A broker who quotes the total average sets an expectation the file cannot meet. A broker who quotes the qualifying average, with the exclusions listed, sets the right one. In the example, the difference is $2,500 a month, which before any expense factor is $30,000 a year.
Where the qualifying average goes next
The qualifying average feeds the rest of the income calculation. For a business account, a lender then applies an expense factor, described in how the expense factor is set. The qualifying average also feeds a debt-to-income ratio, so a mistake here carries into the approval decision.
TrueBankFlow shows both averages, total and qualifying, and recalculates as a reviewer includes or excludes a deposit. Every total links back to the statement lines behind it.
Which transfers come out of average monthly deposits?
Transfers between the borrower's own accounts come out of average monthly deposits, because they are the same money moving, not new income. Transfers from a business the borrower owns into a personal account may count or not, depending on the loan program.
A transfer is any credit that is funded by the borrower's own money or by an account the borrower controls. Counting it is double counting.
Transfers that always come out
- Savings to checking. Moving money the borrower already had.
- Credit line or card advances. Borrowed money.
- Transfers from an account in the same file. If both statements are in the file, the matching debit and credit cancel out.
- Peer-to-peer payments from the borrower's own other accounts. For example, a payment app withdrawal that returns to the bank.
Transfers that depend on the program
- Business account to personal account. If the program qualifies on the personal account, a regular transfer from the owner's business may be treated as a draw, which some lenders accept. If the program qualifies on the business account, the same transfer leaves the account and does not count at all.
- Transfers from a spouse or partner. Accepted as income only with documentation, and often not at all.
How to find them
Matching amounts are the quickest signal. A $5,000 debit from the business account on the 3rd and a $5,000 credit to the personal account on the 3rd or 4th is almost certainly one transfer. When more than one account's statements are uploaded to TrueBankFlow, matching amounts moving between them are labeled as transfers, and the reviewer chooses whether they count toward qualifying deposits. The report records that choice.
A transfer that has no match on the other account is a separate problem. It might come from an account that is not in the file. In that case the underwriter will want that statement too, or a source document.
A worked example
Say a borrower has two accounts in the file. In March, the business account sends $4,000 to the personal account, and the personal account shows a $4,000 credit. The personal account also receives $2,000 from a client. Counting every credit in the personal account gives $6,000. The qualifying figure is $2,000 if transfers are excluded. If the program qualifies on the personal account alone and accepts regular owner draws, the answer is $6,000. If both accounts feed the income figure, the $4,000 is already counted as business revenue, so it comes out on the personal side. The same dollar is never counted on both sides.
The calculation as a whole is explained in the income verification walkthrough.
One time deposits and the average monthly deposits figure
A one-time deposit is a credit that does not repeat, such as the sale of an asset, a tax refund, an insurance payout or a gift. It comes out of the qualifying average, because it will not recur and so cannot support a monthly payment.
The test is repetition. A large deposit that appears once in 12 months is a one-time deposit. A large deposit that appears every quarter might be a seasonal payment from a regular client, and then it belongs in the average.
Telling one-time from lumpy
Two kinds of deposit look alike in a single statement and differ over a year.
- One-time: the sale of a vehicle, an inheritance, a legal settlement, a refund from a vendor.
- Lumpy but real: an annual contract payment, a quarterly bonus, a seasonal peak.
Twelve months of statements show the difference. Twenty-four months show it better. A lumpy deposit repeats on a schedule. A one-time deposit does not.
What to do with a large deposit you cannot place
Exclude it from the qualifying average first, and then find out what it was. If it turns out to be income, add it back with the document that proves it. Sourcing a large deposit with a paper trail walks through what the underwriter will accept.
Effect on the average
Suppose a borrower's regular qualifying deposits are $15,000 a month for 12 months, and in the twelfth month an extra $30,000 arrives from the sale of equipment. Counting it makes the 12 month total $210,000 and the average $17,500. Leaving it out gives $180,000 and an average of $15,000. The one deposit lifted the average by $2,500 a month, which is nearly 17 percent. Underwriters who spot that will remove it and ask why it was in.
Should a short statement month change average monthly deposits?
A short statement month does not change the divisor. Average monthly deposits are divided by the number of months in the lookback, and a month counts as one even if the statement covers fewer days. What changes is how you read the numbers: a short cycle holds fewer days of deposits.
Statement cycles do not always match calendar months. A bank that closes a cycle on the 20th produces 12 statements a year with varying numbers of days. February statements are shorter by a few days. The first and last statements in a set may cover a partial month.
The common situations
- Cycle lengths differ by a few days. Ignore it. Each statement is a month for the purposes of the average.
- The first statement is a partial month, because the account opened mid-month. This is a real short month. Most programs need full months, so the account must have enough history.
- The final statement is a partial month, because it is a mid-cycle printout. An online printout may stop on the day it was pulled. Lenders typically want the full official statement.
- A missing month. Not a short month. The statement set is incomplete, and the average cannot be calculated.
What to do when a month looks low because it is short
Check the deposit dates before you adjust anything. If a client paid on the 1st of the next cycle, the deposit belongs in the next statement, and the shorter month simply caught fewer payment dates. Averaging over the full lookback smooths that out. Adjusting a single month by days is a step few lenders take, so keep the month as it is and let the average do its work.
If you suspect timing is distorting the numbers, compare the 3-month and 6-month averages. When they diverge by a large amount and the cause is timing, the longer period is the more reliable.
Statement dates and the lookback
The lookback is counted in statements. A 12 month program needs 12 consecutive statements ending at or near the application date. A borrower with 11 full statements and a partial 12th has 11 months, and the broker should ask for the missing one.
Average monthly deposits across several accounts
With several accounts, calculate the qualifying deposits for each account, remove transfers between them, add the accounts together for each month, and then divide by the lookback. A deposit is counted in the one account where it first arrived as income.
Borrowers with more than one account include owners with a business checking and a personal checking, people with a separate account for a side business, and sole proprietors with a processor account.
The method
- List the accounts the program allows. Some programs accept only business accounts; some accept personal; some accept both.
- Build a monthly table for each account. Total, excluded and qualifying.
- Match transfers across accounts. Remove both sides from the qualifying figure.
- Add the qualifying deposits by month. One combined line per month.
- Divide by the lookback. The number of months, not the number of accounts.
An example
The numbers are invented. A borrower has a business account and a personal account over the same month.
| Account | Total deposits | Transfers in | Other exclusions | Qualifying |
|---|---|---|---|---|
| Business checking | $30,000 | $0 | $1,000 | $29,000 |
| Personal checking | $9,000 | $6,000 | $0 | $3,000 |
| Combined | $39,000 | $6,000 | $1,000 | $32,000 |
The $6,000 moved from business to personal. It is excluded on the personal side because it is already counted in the business deposits. The combined qualifying deposits for the month are $32,000, not the $39,000 you would get by adding the two totals.
When accounts have different statement dates
Cycles may end on different days. Match each statement to a calendar month by the month where most of its days fall, and keep that rule for the whole file. Consistency matters more than the exact rule.
Accounts the borrower did not list
Underwriters sometimes find another account through a transfer. A debit labeled with another bank's name, or a credit from an account number the file does not include, signals a statement that is missing. Mention it before the underwriter does.
For the rest of the analysis, the guide to bank statement analysis for a loan covers what else a reviewer should look for on those statements. If you want to run multiple accounts through one workspace, get started with TrueBankFlow.