How an S-Corp Owner Gets a CPA Letter to Lower the Bank Statement Factor

The Quick Read: An S-corp owner gets a CPA letter by asking a licensed preparer to certify the business’s real expense ratio for the same period as the bank statements, then submitting it to a lender whose program accepts it. The letter is optional, and it only helps when the true ratio sits below the lender’s default factor. A lender decides whether to honor it.

• The expense factor is set by each lender’s program, not by a federal rule.
• The letter must come from a third-party tax professional. A borrower cannot self-certify.
• It must cover the same months as the statements and show how the number was derived.
• For S-corps, the CPA must say whether owner wages sit inside or outside the expenses.
• A DSCR loan on a rental needs no income letter at all.

Key Terms Defined

Expense factor: the share of business deposits a lender treats as operating costs before counting the rest as income.

CPA letter: a signed statement from a tax professional certifying a specific expense percentage for a stated period.

Bank statement loan: a mortgage that is reviewed on documented income under the applicable program, subject to lender guidelines, using deposit averages instead of tax-return income.

Reasonable compensation: the wage an S-corp must pay its working owner before taking distributions.

Distribution: profit paid to an S-corp owner outside payroll, not subject to payroll tax.

What Does the Lender Do With Your Statements?

The lender totals your eligible deposits, removes anything that is not business income, and averages the rest over the statement window. Programs commonly use 12 months. Then it applies an expense factor to estimate what you actually keep.

Eligible deposits exclude transfers between your own accounts, loan proceeds, gifts, refunds, and one-off credits. Partial owners get credit pro rata, so a 50% owner is generally credited with half of eligible deposits.

The factor is the swing variable. Trade press describes the standard structure as a flat default, often illustrated at 50%, with a profit-and-loss statement or a third-party expense statement as alternatives, as Scotsman Guide explains. That figure is an example, not a rule. Across the wholesale network Lendmire works with, programs differ on the default, on who may certify a lower ratio, and on how far they will move it. No one can promise you a specific factor.

Here is the direction of the math, using illustrative percentages only. If a lender’s default treats half of deposits as expenses and your CPA certifies a lower ratio, a larger share of the same deposits counts as income. Moving from 50% to 30% raises qualifying income by about 40%. That is the whole reason the letter exists.

Is the Letter Worth Requesting?

Run your real ratio first. If your actual expenses are at or above the lender’s default, the letter will not help, and you should skip it. The letter earns its fee when your business is lean: few employees, little inventory, modest overhead.

Contractors who pass money through to subs, payroll-heavy firms, and inventory businesses often land closer to the default, or face pass-through deposits being excluded. Service businesses with low overhead have the strongest case.

A second test: price both account types. Personal statements often skip the factor, but programs differ, and the deposits must clearly trace back to the business. For many owners the best answer comes from pricing business and personal statements side by side.

Why S-Corps Need Extra Care

An S-corp owner is paid through W-2 wages plus distributions. Nolo’s explainer notes that wages carry Social Security and Medicare tax while distributions do not, and that reasonable compensation is a recurring IRS focus. Your CPA is already working inside that structure.

For the letter, the key question is where your own wages sit. Wages you pay yourself are income to you, so the ratio should not treat them as an expense that shrinks your income a second time. If the CPA counts owner wages inside the expenses and the lender also applies a separate wage adjustment, income gets cut twice. Ask your CPA to state plainly whether owner compensation is included in the certified percentage.

Tie-out matters too. The ratio is usually derived from the most recent tax return, so the CPA should be able to walk from the business books to the return to the percentage. Heavy depreciation and write-offs can make the return’s expense picture differ from cash reality. A clear explanation protects you from an underwriter’s questions.

If you use personal statements, wages and distributions both land there. Keep the trail from the business account to your personal account easy to follow, and avoid counting the same dollars twice.

How to Get the Letter, Step by Step

1. Confirm the program first. Ask the loan officer whether the lender accepts a CPA-certified ratio, who may sign, and what the letter must cover.

2. Set the window. The letter’s period should match the months of statements you are submitting.

3. Gather documents for the CPA. Send the statements, the latest filed return, current payroll records, and your ownership percentage.

4. Make the request. Ask for a specific percentage, a short method statement, and an explicit note on owner wages. Most CPAs have seen this request before.

5. Review the draft. Check names, EIN, dates, and that the percentage matches the work.

6. Submit and expect a cross-check. Underwriting tests the ratio against your actual deposits for plausibility.

Ask early. The CPA needs the statement window and the latest return before drafting anything. The fee is generally a modest professional charge, and it varies by firm.

What the Letter Must Contain

Acceptable signers vary by program. Some want a CPA, others accept an enrolled agent or licensed preparer. A bookkeeper or the owner typically will not do.

A sample sentence for a CPA to adapt: “Based on the business’s filed return and books for the period covered, expenses excluding owner compensation represent a stated percentage of gross receipts.” Your CPA should write the real wording in their own voice.

What to Say if Your CPA Hesitates

Some CPAs worry about liability or stay outside their engagement scope. Others add disclaimer language that underwriters reject. Offer to share the lender’s required elements so the CPA knows the exact ask. If the CPA still declines, an enrolled agent or licensed tax preparer may sign under programs that allow it, and some programs accept a CPA-prepared profit-and-loss statement as a separate route.

Letters get returned for predictable reasons:

• The period does not match the statements.
• The percentage has no stated derivation.
• Disclaimer language undercuts the certification.
• The date is stale.
• The business name does not match the account.

If the lender still will not lower the factor, the file reverts to the default. Underwriting may then weigh assets and credit more heavily, or you can compare another program.

Where the Rule Breaks

• Lender sets the final number. The borrower does not choose the factor.
• Under two years in business. Underwriters lean harder on liquid assets and credit.
• Reserves. Business cash may not count as your own reserves.
• Occupancy. On a primary residence or second home, a bank statement loan is a consumer mortgage, and the lender must still verify ability to repay. The CFPB’s Regulation Z ability-to-repay rule covers that. A bank statement loan on a non-owner-occupied rental is business-purpose, which changes the disclosure regime.
• Leverage. On a primary residence, select lenders in Lendmire’s network go up to 90% LTV on purchase and rate-term. Owner-occupied cash-out tops out at 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio. Investment-property cash-out runs to about 75% LTV. Investment purchase leverage on bank statements varies by lender. Loan sizes run roughly $125,000 to $3,500,000, with reserves commonly around six months. All of this is subject to lender guidelines.

Does a DSCR Loan Need a CPA Letter?

No. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal bank statements there confirm funds to close and reserves. They do not measure income, so no expense letter applies.

That is the practical split for investors. If you need to qualify personally, for a primary residence or a personally titled purchase where your write-offs shrink your tax-return income, the bank statement route and its CPA letter fit. If you are buying a pure rental, a DSCR loan is usually simpler. Lendmire’s complete DSCR loans guide lays out when each lane fits. Owners in other professions face the same factor question, covered in Lendmire’s piece Can a CPA Letter Cut a Practice Owner’s Bank Statement Expense Factor?.

Don’t confuse this with the IRS S-corp approval or verification letter. That one proves your entity’s tax status. The lender-facing CPA letter certifies an expense ratio. A lender may ask for both.

Reach the team at 828-256-2183.

This article is general information, not legal or tax advice. Tax treatment varies, so consult a qualified attorney or CPA about your own situation.

About Lendmire

Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Scotsman Guide, Rev Up the Engine for Non-QM Lending

2. Nolo, S Corporations and Salaries

3. CFPB, Regulation Z 12 CFR 1026.43

4. CFPB, General QM Final Rule