Expense Factor Vs CPA Letter — The Quick Read: A bank statement loan turns your business deposits into qualifying income, and before that income counts, the lender knocks a percentage off for overhead — the expense factor. You get two ways to set that percentage: accept the program’s standard fixed number, or bring a CPA letter that documents what your business actually spends. The default path is simpler and needs no extra paperwork. The CPA letter path usually helps lean-overhead businesses qualify for more, but it takes more coordination. Neither one beats the other across the board — it comes down to what your business really costs to run.
Key Terms Defined
- Expense factor: the percentage of gross business deposits a lender subtracts before counting the rest as qualifying income.
- CPA letter: a signed document from a CPA, enrolled agent, or qualifying tax preparer that certifies your business’s real expense ratio, in place of the lender’s default number.
- Bank statement loan: a mortgage that qualifies a self-employed borrower using bank deposits instead of traditional personal-income documentation.
- Non-QM loan: a mortgage built outside the standard agency underwriting box, for borrowers whose income doesn’t show up cleanly on a W-2 or a tax return.
- DSCR loan: a rental-property mortgage that is reviewed on the property’s own rent, not on the borrower’s personal income at all.
The Honest Answer: Who Each Path Fits
The default expense factor fits a borrower who wants a simpler file and runs a business with average or heavier overhead. The CPA letter fits a borrower with a lean, service-based business whose real costs run well below the standard assumption — and who’s willing to get an accountant involved before closing.
Across the bank statement files that move through Lendmire’s wholesale network, this decision usually comes down to one question: does the fixed percentage undersell what the business actually keeps? If it does, the CPA letter route is worth the extra step. If the fixed number is roughly accurate, there’s little reason to add a document to the file.
A bank statement loan is a form of non-QM financing — it sits outside standard agency underwriting because it swaps traditional personal-income documentation for deposits. That’s a structural fact, not a red flag, and it’s why the expense factor exists at all: gross deposits aren’t net income, so someone has to estimate the gap.
Side-by-Side
| Factor | Default Expense Factor | CPA Letter |
|---|---|---|
| Review basis | Fixed percentage set by the program | Actual ratio certified by an accountant |
| Documentation | None beyond bank statements | Signed, dated CPA letter matching the statement period |
| Best-fit business type | Product businesses, higher headcount, mixed overhead | Lean service businesses, low overhead, few or no employees |
| Entity vesting | Personal-name qualification either way | Personal-name qualification either way |
| Timeline description | Fewer moving pieces to gather | Requires coordinating with a preparer before submission |
| Reserve expectations | Same reserve tiers apply regardless of path | Same reserve tiers apply regardless of path |
Property type, entity vesting, and reserve requirements don’t shift based on which expense path a borrower picks — those are set by loan size and occupancy, not by how the income gets calculated. The real difference lives entirely in the numerator: how much income the file shows. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
How the Default Expense Factor Actually Works
The default path applies a fixed percentage to gross business deposits, and it moves fast because there’s nothing to certify. Across the network Lendmire works with, that fixed ratio typically runs 20% for a lean service business with no employees, 40% for a business carrying one to five employees, and 50% for a business with six or more employees or any business selling a physical product. Some files instead use a profit-and-loss method, capped at 80% of gross deposits, when that route fits the borrower’s records better.
This structure means two businesses depositing the same amount each month can qualify very differently. A solo consultant with almost no overhead gets a lighter haircut than a retail operation carrying inventory and payroll. That’s because the fixed tiers already assume a product-based business spends more to generate the same revenue.
The upside of the default path is speed of assembly, not qualifying power. No accountant sign-off, no extra letter, no waiting on a third party’s schedule. For a borrower whose real costs land close to the tier they’d get anyway, there’s no reason to complicate the file.
How the CPA Letter Changes the Math
A CPA letter replaces the standard fixed percentage with a documented, business-specific ratio — and for a lean-overhead business, that usually means more qualifying income than the default tier would allow. It has to come from a CPA, enrolled agent, or another qualifying tax preparer, and it has to reference the same statement period the loan file is using.
The letter isn’t a formality underwriters wave through. It needs to identify the preparer by name, license, and firm; identify the business by legal name or DBA; and state the expense ratio as a percentage of gross revenue for the exact months the bank statements cover. An unsigned, undated, or mismatched letter gets rejected back to the standard factor — the file simply defaults to whichever fixed tier the business type calls for.
This is also where a business’s real character can outrun the standardized tiers built into any program. A consulting practice with minimal payroll and no physical inventory often runs a true expense ratio well under what the standard tiers assume, and a properly documented CPA letter is the only mechanism that captures that gap. Without it, the file just accepts the fixed assumption — accurate or not.
The tradeoff is coordination. Getting a CPA letter means looping in a preparer, making sure the dates line up with the statement period, and making sure the certification format meets what the underwriter expects. It’s not paperwork most borrowers keep handy — it has to be requested specifically for this purpose.
When the Default Expense Factor Is the Better Fit
The default factor works best for a borrower whose real overhead is close to — or higher than — what the standard tiers already assume. Product-based businesses, businesses carrying real payroll, and borrowers who’d rather avoid an extra document all tend to land here.
If a business runs six or more employees, or moves physical inventory, the standard 50% tier is often a reasonable approximation of what actually leaves the account each month. In that case, a CPA letter adds a step without adding much qualifying income — the certified ratio may come back close to the fixed number anyway. Borrowers with straightforward, higher-overhead operations usually don’t gain enough to justify the extra coordination.
It also fits a borrower on a tighter timeline for gathering documents, even setting aside how quickly any loan actually funds. Fewer moving parts means fewer places for a file to stall on a missing signature or a mismatched date.
When a CPA Letter Is the Better Fit
The CPA letter earns its keep for lean, service-based operations, where the standard fixed factor clearly overstates real costs. Think of a solo practitioner, a freelance consultant, or a small professional-services shop with little or no payroll. The 20% tier already assumes low overhead. But an actual, documented ratio can land even lower and lift qualifying income further.
This move also makes sense when a borrower’s business doesn’t fit the fixed tiers at all. Seasonal businesses, businesses that recently changed structure, or industries with unusual costs are good examples. In these cases, a documented, borrower-specific ratio tells a more accurate story than a one-size-fits-all percentage.
One structural note worth flagging: business ownership matters as much as the expense math. On files running through Lendmire’s network, a borrower generally needs at least 25% ownership in the business supplying the deposits before those funds count at all — a CPA letter doesn’t fix an ownership problem, and submitting 100% of a business’s deposits when a borrower actually owns half the company is a separate, more serious issue than which expense ratio applies.
Co-mingled accounts complicate both paths equally. If a borrower moves money back and forth between personal and business accounts, the file needs to explain that flow either way, or the same dollars risk getting counted twice — regardless of which expense treatment is used.
Where the Loan Itself Fits
Bank statement loans in Lendmire’s wholesale network run from $300,000 to as high as $30,000,000, split across a portfolio non-QM program carrying files to $6,000,000 and a separate bank portfolio program that carries twelve-month-statement files on its own ladder up through $30,000,000. Leverage steps down as the loan gets larger — a primary-residence purchase can reach 90% at the smallest sizes, sliding down through the mid-80s and mid-70s as the loan amount climbs past $1,000,000, $2,000,000, and $3,000,000, with everything above roughly $4,000,000 reviewed case by case before submission. Second homes and investment properties generally run about five points lower in leverage at every size band, subject to lender guidelines and full underwriting.
Documentation runs 12 or 24 consecutive months of personal or business statements. The credit floor is 660 on the portfolio program, 680 on the bank program, and 700 above the largest loan sizes. Debt-to-income is allowed up to 50%. Reserves typically run three months of payments on smaller loans, then step up to six and then nine months as the loan size grows. Add extra months for each other financed property a borrower carries. These are typical ranges from select wholesale-network guidelines, not universal figures. Every file still gets underwritten individually.
Files running through this network see the expense-factor question most often on solo-owner service businesses — consultants, agents, small professional practices. These are the cases where the fixed tier and the true cost structure diverge the most. The pattern shows up often enough that a quick gut-check on the projected expense ratio, before submission, often decides whether a CPA letter is worth requesting at all.
What This Means If You’re Buying Rental Property Instead
If the property itself brings in enough income to cover the payment, the expense-factor question may not apply to your file at all. A DSCR loan looks mainly at property-level rental income covering the payment, subject to lender guidelines. It doesn’t look at your personal bank deposits or business overhead. That’s why it’s a common choice for self-employed investors whose personal income files get complicated by expense-factor math.
Lendmire’s complete DSCR loans guide walks through how this qualification works, property by property. If you’re buying rental units rather than refinancing your primary home, you can often sidestep the personal expense-factor question entirely. The rent either covers the payment or it doesn’t. Your business overhead never enters the picture.
That said, the two products aren’t mutually exclusive. A high-net-worth borrower might use a bank statement loan — with either expense path — on a primary residence, while financing rental units separately on DSCR terms. Choosing the right expense treatment on the personal file, and understanding how a bank statement lender applies the expense factor and CPA letter, still matters for that first piece even when the rental portfolio runs on a completely different qualification path.
The Bottom Line
Neither path is objectively stronger — the fixed factor is faster to assemble, and the CPA letter is more accurate for a business whose real costs undercut the standard assumption. A borrower running a lean operation who skips the letter is very likely leaving qualifying income on the table. A borrower with real, heavier overhead who chases a letter anyway is adding a document that probably won’t move the number much.
The honest read: know your actual expense ratio before deciding which route to take, not after. If it’s meaningfully below the tier your business type would default to, the letter is worth the coordination. For a closer look at exactly how to use a CPA letter to lower the expense factor on bank statements, that’s the more granular walkthrough.
Investors weighing either path — or wondering whether a rental purchase should skip personal income documentation altogether and go DSCR instead — can talk through the options with Lendmire at 828-256-2183 or request a quote to see how the property, credit profile, and leverage line up under either approach.
For deeper background on the mechanics discussed here, see Fannie Mae — SEI 1084 Workbook / Self-Employed Income calculation and Fannie Mae Self-Employed Guidelines explainer.
Frequently Asked Questions
Is a CPA letter required for every bank statement loan? No. Most files run on the program’s standard fixed expense factor without any accountant involvement at all. A CPA letter only becomes useful — or required — when a borrower wants to move off that default number, whether to document a lower expense ratio or to support a non-standard business structure.
Can a lender reject a CPA letter? Yes, and it happens for specific, fixable reasons — an unsigned letter, a missing license number, or a certification period that doesn’t match the bank statements being used. When that happens, the file simply falls back to the program’s standard expense tier rather than getting denied outright.
Does the expense factor apply to personal bank statements too? Generally, no. Personal account deposits have already passed through the business’s real costs before landing in the account, so most programs count personal-account deposits largely as they appear rather than applying a business-style haircut. The expense factor exists specifically to offset gross, pre-expense deposits sitting in a business account.
What if my business ownership is under 25%? That’s a bigger issue than the expense-factor choice — ownership percentage below the threshold a program requires can keep the deposits from counting toward qualifying income at all, regardless of which expense treatment is used.
Does 12 months or 24 months of statements change which expense path makes sense? It can, because the lookback window affects how much a slow stretch gets averaged out. A 24-month lookback smooths out a slow stretch, which sometimes makes the default factor look fine on its own; a shorter 12-month window that captures a strong recent run may make the gap between the fixed tier and a documented CPA ratio matter more, since there’s less time for a rough patch to average out.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 40 markets — 39 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
Lendmire’s Top Mortgage Workplace recognition is documented by Scotsman Guide 2025 Top Mortgage Workplace and Scotsman Guide 2026 Top Mortgage Workplace.
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References
1. Fannie Mae — SEI 1084 Workbook / Self-Employed Income calculation
2. Fannie Mae Self-Employed Guidelines explainer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.
