Practice Owners Get A Lower Expense Factor On A Bank Statement Loan — The Quick Read: Most bank statement programs start every business-account file at a flat expense factor near 50%, cutting qualifying income roughly in half before anything else is reviewed. A practice owner can often do better by documenting a lower, business-specific ratio — through staffing-based tiers, an accountant-provided figure, or a profit-and-loss method — rather than accepting the generic default. The right path depends on how many people the practice employs, how the books are kept, and whether the practice runs revenue through a personal or business account.
A bank statement loan is a mortgage where a lender calculates qualifying income from deposit history instead of traditional personal-income documentation. This single design choice is why self-employed practice owners use it. It’s also why the “expense factor” conversation matters so much to what they actually qualify for.
Key Terms Defined
Bank statement loan — a non-QM mortgage that qualifies a borrower using 12 or 24 months of bank deposits instead of traditional personal-income documentation.
Non-QM — short for non-Qualified Mortgage, meaning the loan sits outside the standard agency underwriting rules and instead follows a lender’s own documentation methodology.
Expense factor (or expense ratio) — the percentage of gross business deposits a lender assumes goes to overhead before what’s left counts as personal qualifying income.
CPA expense ratio letter — a written statement from a licensed CPA or credentialed tax preparer, based on the practice’s actual books, that documents a real overhead percentage instead of a generic assumption.
Debt-to-income ratio (DTI) — the share of gross monthly income that goes toward debt payments, including the new mortgage.
Reserves — liquid funds a borrower has left over after closing, measured in months of housing payment.
Why the Default Factor Punishes Practice Owners
The standard business-account default runs near 50% across most non-QM program descriptions, per Scotsman Guide — meaning half of every dollar deposited gets treated as overhead, whether that’s realistic or not. For a licensed practice with lean overhead, that number is arbitrary and expensive.
Here’s the underlying problem. IRS data on nonfarm sole proprietorships shows total profit as a share of gross receipts fell to 19.7% in the most recent tax year measured, per the IRS Statistics of Income Bulletin — down from 22.0% the year before, the lowest reading since 1990. But that average buries a real split by industry. The professional, scientific, and technical services category — the IRS bucket covering law, accounting, consulting, and comparable licensed practices — posted the largest profit share of any sector at 24.7%, with total profits rising 2.5% to $101.6 billion. A dentist, attorney, or consulting-firm owner with a genuinely efficient cost structure is being measured against a flat 50% assumption that has nothing to do with their actual books. That gap is exactly what a lower, documented factor is built to close.
Three Paths to a Lower Number
A practice owner isn’t stuck with the default. Across the wholesale programs Lendmire places files with, there are generally three ways a business-account file gets a better number than the flat assumption.
| Path | How it works | Best fit |
|---|---|---|
| Staffing-based tier | Fixed ratio tied to headcount: 20% for a service business with no employees, 40% for 1-5 employees, 50% for 6+ employees or any product-based business | Solo practitioners and small practices with light payroll |
| Accountant-provided ratio | A CPA or credentialed preparer certifies the practice’s real overhead percentage from actual books | Practices whose true costs run meaningfully below the tier they’d otherwise land on |
| Profit-and-loss method | A P&L prepared by the borrower or a third party, capped at 80% of income treated as expense | Practices with irregular deposit patterns or recent growth the raw deposit average doesn’t capture |
That first path is the one most practice owners overlook. A solo dentist or single-attorney practice with no staff doesn’t automatically get quoted 50% — a service business with zero employees can land at 20% before any accountant even gets involved, through select lenders in the network. Add staff, and the tier moves to 40%, then 50% at six or more employees or the moment the practice sells a physical product alongside services (think a dermatology practice selling skincare lines, or a dental office selling take-home appliances).
The CPA Expense Ratio Letter, Explained Plainly
A CPA expense ratio letter documents the practice’s real overhead. This lets underwriting use an accurate figure instead of a generic default. But the letter itself never approves the loan. It’s a factual attestation, not a qualifying decision. The lender’s underwriter makes the final call on usable income.
The math behind the letter is simple: total operating expenses divided by gross income, stated as a specific percentage for a specific period, as described by ignitiontax.com. The preparer reviews traditional personal-income documentation, profit-and-loss statements, and bank statements at a high level — not an audit, and no opinion on future performance or debt service. A practice owner can’t write their own letter. It has to come from an independent, credentialed preparer who actually knows the entity’s filings — the borrower’s own math doesn’t count.
One practical wrinkle: transfers from the practice’s own business account into the owner’s personal account count as qualifying income at 100%, no expense factor applied at all, through select wholesale programs. That’s often the cleanest override for an owner who already routes draws to a personal account consistently — no letter needed, because personal-statement income is calculated by averaging eligible deposits directly, without any expense deduction.
When a Lower Factor Backfires
Chasing a certified letter isn’t automatically the right move. Sometimes the generic default actually works better for the borrower. Here’s why: if a practice’s real documented overhead runs at or above the tier it would otherwise get, getting a formal letter locks in a worse number, not a better one. High-overhead specialties can easily land here. Think imaging-heavy medical practices, surgical suites with significant equipment leases, or multi-location operations. Their overhead can run higher than a lean service-business tier would assume.
The smart sequence: estimate the real ratio first, informally, before paying for a certified letter. If the practice’s actual costs look higher than the tier the file would otherwise land on, skip the letter and let the standard tier apply.
Business Account vs. Personal Account: The Choice That Matters Most
The account type a practice owner routes income through decides whether an expense factor even applies. This choice usually matters more than which specific factor gets used afterward. Personal-account deposits are averaged directly, with no haircut. Business-account deposits get an expense factor applied before anything counts.
That means a practice owner who consistently transfers profit to a personal account, and can document that pattern cleanly, may sidestep the entire expense-factor conversation. The catch is commingling. When personal and business deposits mix in the same account, underwriting has a harder time isolating real practice revenue from personal transfers — and files tend to get treated more conservatively as a result, regardless of what any letter states. Clean separation between the two account types, maintained consistently across the 12- or 24-month lookback, is worth more than any single certified percentage.
Two related practical notes worth flagging early: 24 months of statements can understate income for a practice that’s grown recently, while 12 months captures a fresher, often stronger picture — and a practice that blends service revenue with product sales (a med spa combining consultations with retail, for instance) can get classified more than one way, which changes the starting tier before a letter even enters the conversation. Getting clean, consistent revenue documentation in place before underwriting starts avoids both traps.
Where This Fits the Bigger Picture
The expense-factor conversation only governs the loan on the home the practice owner occupies personally. For a practice owner who’s also building a rental portfolio, that’s a completely separate underwriting question. Most DSCR loans — DSCR stands for debt-service coverage ratio, a measure of whether a property’s rent covers its own payment — qualify primarily on the property’s rental income rather than the owner’s personal deposits or practice cash flow at all. Lendmire’s complete DSCR loans guide walks through how that property-level qualification actually works.
That split is genuinely useful for a busy practice owner. It means the expense-factor math on the personal home doesn’t have to touch the rental purchase at all — the property carries its own file. Still, the practice’s personal deposit-to-income math matters indirectly: it affects overall reserves, liquidity, and debt profile, all of which a lender reviews before closing any additional financed property. A practice owner sitting on strong reserves and a clean personal file typically has an easier path across both loans than one juggling thin liquidity on either side.
For sizing perspective: through select wholesale programs, bank-statement financing runs from roughly $300,000 up to $30,000,000, split across a portfolio non-QM program to $6,000,000 and a bank portfolio ladder carrying twelve-month-statement files to $30,000,000 (65% at the lower bands, stepping down to 55% at the top, interest-only capped at 60% or the band ceiling, whichever is lower). Leverage on a primary residence steps down as the loan size climbs — commonly 90% under $1,000,000, tightening through the mid-size bands, then moving to case-by-case review above $4,000,000 before any file that size goes to submission. Every figure here is a typical ceiling through the network’s wholesale programs, subject to full underwriting — never a promise.
Credit floors run near 660 on the core portfolio program, closer to 700 above the highest size tiers, with debt-to-income allowed up to 50% and reserves scaling from roughly 3 months on smaller loans to 9 months or more as size increases. None of this replaces a real conversation with an underwriter, but it gives a practice owner a realistic sense of where the numbers land before diving into paperwork. Investors weighing a bank statement loan against Lendmire’s DSCR loan vs. bank statement loan comparison can see which qualification path actually fits their situation better.
Common Misconceptions
A few myths keep resurfacing in practice-owner conversations, and they’re worth clearing up directly.
The expense factor is not a fixed universal rule — it’s a starting assumption meant to be displaced by better documentation when the real cost structure justifies it. A CPA letter does not always help; if the certified number comes back at or above the default tier, it can lower qualifying income instead of raising it. The letter also doesn’t set the loan’s qualifying income itself — it documents historical context, and the underwriter makes the final call. And personal-account deposits are never treated the same as business-account deposits; the account type chosen changes the math before any factor conversation starts.
Practice owners sometimes assume “bank statement loan” means fewer questions. It actually means different questions — calibrated to how income really shows up, rather than how a standardized model expects it to look.
Frequently Asked Questions
Does every lender use the same expense factor tiers? No. Tiers vary across the wholesale market, and the 20/40/50 staffing-based structure described here reflects programs in Lendmire’s own network — lenders may set their defaults differently, so program terms should always be confirmed at the time of application.
Can a practice owner combine a staffing tier with a CPA letter? Generally the certified letter, once submitted, replaces the generic tier rather than stacking with it — underwriting uses whichever documented figure governs the file, subject to program guidelines.
Does the number of years in practice affect the expense factor? The expense factor itself is generally driven by staffing size, account type, or documented overhead — not tenure. Tenure can matter separately for overall file strength, including reserves and credit history review.
What if the practice’s income is split across multiple accounts? Consistent, well-documented routing between accounts is workable, but commingled personal and business deposits in the same account tend to push underwriting toward more conservative treatment, regardless of any certified ratio submitted.
Is a P&L-only path always weaker than a CPA letter? Not necessarily. A profit-and-loss method, capped at 80% expense treatment through select programs, can work well for practices with irregular deposits or recent growth that a raw deposit average doesn’t capture accurately.
Tax treatment can depend on how funds are used and how the practice is held; owners should keep clear records and speak with a qualified tax professional before relying on any deduction assumption.
Say a practice owner is weighing a bank statement purchase or refinance. They may want to see how deposit history, staffing, and documentation choices affect qualifying income. Lendmire can help. It compares options across its wholesale network based on the practice’s actual structure, credit profile, and goals.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
Self-employed borrowers can compare both super jumbo programs on Lendmire’s self-employed mortgages page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 40 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 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. Scotsman Guide — “Rev Up the Engine for Non-QM Lending”
2. IRS Statistics of Income Bulletin, Spring 2025 (Sole Proprietorship Returns, TY2022)
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.
