Default Factor vs CPA Letter vs First-Page Statements for a 1099 Earner

The Quick Read: The default factor suits 1099 earners whose real overhead sits close to the lender’s assumption, a CPA letter pays off only when documented expenses run well below it, and a first-page-only submission is not a working option, because underwriters need every page of every statement. For a rental purchase, the whole question often disappears, since property-level income can carry the file instead.

• Default factor: a flat expense assumption with no accountant involved. It works best for average-overhead earners and for borrowers who want a clean, simple file.
• CPA letter: a licensed professional certifies the actual expense ratio. It can raise qualifying income or lower it, so find out the number before ordering one.
• First-page statements: this is not an income method. Programs generally want every page, with the account holder name visible, so partial submissions stall files.
• Property type decides the lane: owner-occupied purchases use these documentation choices, while investment rentals usually route to DSCR.

Key Terms Defined

Default factor: the standard percentage a lender subtracts from business-account deposits to estimate operating costs when the borrower offers no proof of actual expenses.

CPA letter: a signed statement from a licensed CPA, tax preparer, or enrolled agent that certifies the business’s actual expense ratio over the period the bank statements cover.

Full statements: every page of every statement in the review window, including pages that look blank, so the underwriter can see every deposit, transfer, and withdrawal.

Qualifying income: the monthly figure a lender uses after totaling eligible deposits, removing transfers and non-income credits, applying an expense factor where it applies, and dividing by the number of months.

Side-by-Side

The table reflects published industry norms and how files typically behave across the wholesale network Lendmire works with. Individual lender program sheets control the details.

When the Default Factor Is the Better Fit

The default factor is the better choice when your real costs sit near what the lender assumes, or when you cannot comfortably prove otherwise. It keeps the file simple. You send full statements, the lender applies its assumption, and the income number comes straight out of your deposits.

Three borrower profiles tend to do well here.

The average-overhead earner. A freelancer with modest software costs, some travel, and a home office may find a letter changes little. If a CPA’s honest figure lands near the default, the letter adds cost and effort for no gain.

The heavy-cost trade. Think of a contractor with trucks, equipment, and payroll. Real expenses can exceed the default, and some programs assign a higher factor to certain industries. A CPA letter in that case can pull qualifying income down, not up. Ask the CPA for a rough ratio before requesting anything in writing.

The borrower without an accountant relationship. If your CPA declines to certify a ratio, or you prepare your own returns, the default path avoids the problem entirely. Programs generally require a licensed professional’s signature, so a friend’s informal note does not substitute.

There is also an account-type wrinkle. Practitioners across the network describe personal-account deposits as often counted without the business expense haircut, while a personal account that regularly receives business receipts is usually treated as a business account. That distinction can matter more than any letter. Commingled accounts are a common surprise, so sort out which account carries the income before you pick a documentation path.

When a CPA Letter Is the Better Fit

A CPA letter is the better fit when your documented expenses run clearly below the lender’s default and your accountant will put a ratio in writing. The letter replaces an assumption with a certified figure, and a lower certified ratio raises monthly qualifying income.

Run the logic without dollars. Picture a solo consultant whose only real costs are a laptop, software subscriptions, and professional fees. Her actual expense ratio is far below a typical default. Every deposit she logs then counts for more, and that can lift the file from a borderline position into a comfortable one, or support a larger loan within the program’s range of roughly $125,000 to $3,500,000. Her lender still decides what income to use, and a letter does not guarantee approval.

Some practical points shape whether the letter helps:

• Who signs. Programs typically accept a licensed CPA, tax preparer, or enrolled agent. The letter generally lists the signer’s name and license number, the business name, the certified ratio, and a period matching the statements.
• Program floors. Some lenders set a minimum expense ratio no matter what the letter says. A very low certified ratio may still be adjusted upward.
• Alternative paperwork. A few programs accept a CPA-prepared profit-and-loss statement instead of a ratio letter. Ask which format the specific program prefers.
• Effort. A letter takes your accountant’s time and may carry a fee. If the gain is small, skip it.

For a deeper look at the mechanics of choosing between the two, Lendmire’s piece Expense Factor vs CPA Letter on a Bank Statement Loan for a 1099 Earner works through the logic for a self-employed borrower. If you already know the letter is the right call, its companion on using a CPA letter to lower the expense factor on bank statements covers how to approach the request.

Here is the part borrowers miss. A CPA letter is not a one-way tool. It reveals your true expense ratio to the lender, and if that ratio is worse than the default, you have just documented a smaller income. Test the number informally first.

What About First-Page Statements?

Submitting only the first page of each statement is not an income option. Underwriters need every page, because the first page typically shows a balance summary while the deposit detail sits further in.

The idea sometimes comes from a reasonable instinct. The first page looks like the headline, so it seems like enough. In practice, the lender is totaling eligible deposits, stripping out transfers and non-income credits, and checking for large or unusual items. None of that is possible from a summary. Across the programs in the network, the file commonly needs these elements:

• Every page of each statement in the review window, with the account holder’s name and account number on each page.
• Pages that appear blank, because a missing page raises questions about what the page held.
• The same account for each month, so the history reads as one continuous record.
• Deposit sourcing for large or irregular credits, such as an invoice or a settlement letter.

Deposit trend and overdraft activity also draw review, and programs differ on how much decline or how many returned items they tolerate. A submission that hides pages does not make weak months disappear. It makes the file look unfinished.

If a lender or loan officer ever described a first-page approach to you, ask exactly what they meant. It may refer to personal statements counted at full value, which is a program rule and not a page-count shortcut. Whatever the program, plan on sending complete statements.

Does a Rental Purchase Change the Answer?

For a rental purchase, usually yes. If you are a 1099 earner buying an investment property, the default factor, the CPA letter, and the statement review may all be beside the point.

DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The Federal Register notice for the ability-to-repay rule treats investment-purpose lending as business-purpose, and the Federal Reserve’s Reg Z guidance lists the facts that determine business purpose, including whether the borrower occupies the property. Whether the borrower occupies the property is the dividing line. A bank-statement loan on an owner-occupied home or second home is a consumer mortgage, so TRID disclosures apply. A bank-statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID. Occupancy decides which regime applies.

A DSCR file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Your personal 1099 income does not size the loan, though credit, reserves, appraisal, sourced funds, and entity documents are still reviewed. Programs below a 1.00 coverage ratio are available through select lenders in the network, but leverage and terms adjust. A CPA letter may be requested on some DSCR files, but only to confirm you are self-employed, not to size income. Lendmire’s complete DSCR loans guide lays out how that structure works.

Owner-occupied purchases are different, and the income paths here matter again. Typical leverage on a primary residence runs up to 90% LTV on a purchase or rate-term refinance, with the strongest files earning the top of that range. An asset-depletion alternative, which qualifies from liquid assets, can reach about 80% LTV on a primary residence. On an owner-occupied cash-out, whether primary residence or second home, the ceiling drops to roughly 80% LTV with a fixed expense ratio, and 75% with an accountant-prepared ratio, depending on loan size and credit. An investment-property cash-out tops out around 75% LTV. Investment purchase leverage on bank statements varies by lender, and investor-focused leverage guidance belongs on the DSCR side. All of these are typical network ranges, not promises.

Say a house-hacker is buying a fourplex and will live in one unit. That file is owner-occupied, so the 1099 earner returns to the documentation choices above, and the letter-versus-default question becomes live. After the owner moves out and the building turns into a pure rental, later financing may look different.

The Balanced Verdict

Choose the default factor when your costs look ordinary, your accountant is unavailable, or you want the leanest file. Choose the CPA letter when your real expense ratio is clearly low and a licensed professional will certify it, but test the ratio first, since a letter can lower income as easily as raise it. Treat first-page-only submissions as a non-starter and send complete statements.

Two situations override all of that. If the property is a rental you will not occupy, DSCR often makes the whole comparison unnecessary. If your income arrives through cash, cards, or transfers with no 1099s, statements are the only way to document it, so the question becomes how clean those statements look.

This is the honest tradeoff. The letter takes more effort and carries more risk, but for the right borrower it is the biggest lever in the file. The default factor gives up some upside in exchange for simplicity. Neither is wrong, and your actual overhead decides which is right.

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

Owner-occupied bank-statement lending runs through consumer mortgage licensing in 16 states, and Lendmire acts as a mortgage broker arranging financing through select lenders in its wholesale network; it is not a lender and makes no commitment to lend.

For current guidelines and terms, see Lendmire’s DSCR loan programs page.

About Lendmire

A non-QM mortgage broker (NMLS# 2371349), Lendmire arranges DSCR financing for real estate investors in 41 markets — 40 states plus Washington, D.C. Because deals are underwritten primarily on property cash flow rather than personal income documentation, the structure suits self-employed buyers and entity-owned portfolios. Lendmire places loans through wholesale investor lenders; it is not a direct lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Federal Register: Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act

2. Federal Reserve: Reg Z guidance on business-purpose credit