How a CPA Letter Raises Bank Statement Income for a Sole Proprietor

The Quick Read: A CPA letter raises a sole proprietor’s qualifying income by replacing the lender’s default business expense assumption with the expense ratio an independent accountant certifies, so a larger share of your average monthly deposits counts as income when your real costs run below that default and the program accepts the letter.

• The letter works on bank statement loans, which qualify on documented income under the applicable program, subject to lender guidelines.
• It does nothing for a DSCR loan, because that loan looks at the property’s rent and not at your deposits.
• It is optional. It pays off mainly when your real expenses sit well below the default factor.
• Each program decides whether it accepts the letter and how low a certified ratio can go. You do not pick the number.
• On owner-occupied cash-out files, using an accountant-prepared ratio can cost you leverage, which we cover below.

Most self-employed buyers hear about the letter late, usually after a lender has already applied a flat expense haircut to their deposits. By then the income number looks smaller than the business feels. This guide walks through how the math works, where it breaks, and when the letter is worth the trouble.

Key Terms Defined

Bank statement loan: A mortgage reviewed around 12 months of business or personal bank statements instead of traditional personal-income documentation. Qualifying income comes from your deposit averages.

Expense factor: The share of business deposits a lender treats as operating costs. The remainder counts as your income.

CPA letter: A signed statement from a CPA, enrolled agent, or other qualifying tax preparer that certifies your business’s actual expenses as a percentage of gross revenue.

Qualifying income: The monthly income figure the lender uses to measure your debts against your earnings.

DTI (debt-to-income ratio): Your monthly debts divided by your qualifying monthly income. A higher income figure lowers the ratio.

DSCR loan: An investor loan that qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. It does not use your personal income.

How Does a Lender Turn Deposits Into Income for a Sole Proprietor?

The lender totals your eligible deposits, removes anything that is not income, averages the rest, and applies an expense factor if the account is a business account. The result is your qualifying monthly income. Here is the sequence across most programs in Lendmire’s wholesale network.

1. Pick the statement window. Our network programs typically use 12 months of statements, business or personal. Some lenders in the wider market ask for 24. Scotsman Guide describes the same 12-to-24-month range for self-employed borrowers.

2. Total the eligible deposits. The underwriter strips out transfers between your own accounts, loan proceeds, refunds, and other credits that are not revenue.

3. Average the months. A single strong month does not set your income. The average does.

4. Apply the expense factor. On a business account, the lender subtracts a flat share of deposits for costs. Scotsman Guide uses 50% as its example of a standard factor. Lenders set their own.

5. Feed the result into DTI. Qualifying income is divided into your monthly obligations, including the new mortgage.

The formula is plain. Qualifying monthly income equals average monthly deposits times one minus the expense ratio. The only lever you can move is the expense ratio, and that is where the letter comes in.

A sole proprietor sits in an awkward spot. Your tax return reports profit on Schedule C, and the IRS instructions for Schedule C show that net profit lands on line 31 after deductions. Write-offs shrink that line. So the return can understate the cash your business actually produces. Bank statements show the cash. The expense factor is how the lender estimates what it cost to earn it.

What Does a CPA Letter Change, and What Can’t It Do?

The letter swaps a generic cost assumption for a certified one. It does not prove your income, it does not approve your loan, and it does not override a program that refuses it. Think of it as one input to one line of the calculation.

Is it required? No. A bank statement file moves forward without one, using the lender’s default factor. The letter is a choice you make when your real costs are far below that default.

Each lender also sets a floor. A certified ratio can only go so low before the program stops accepting it. Floors differ by program, so the same letter can lift income on one file and hit a ceiling on another. Because Lendmire sees many lenders’ guidelines side by side, this is the point where file placement matters most. A few programs welcome a certified ratio, some accept only a profit-and-loss statement prepared by a tax professional, and some apply the flat factor no matter what.

A Worked Example in Percentages

These figures are modeled assumptions, not network guidelines and not sourced market data. They show the mechanics only. The numbers express each case as a share of average eligible monthly deposits.

Move from a 50% default to a certified 30%, and the share of deposits counted rises from half to 70%. In this modeled case, that lifts qualifying income by 40%, with the same bank statements and the same business. A certified 20% would lift it by 60%.

That jump can change a DTI result. It can also change how much house a file supports. But the lift depends entirely on the gap between the default and your real costs. If your actual ratio is near the default, the letter adds almost nothing.

Now the trade-off. Better income treatment can cost you leverage somewhere else. On an owner-occupied cash-out, programs in the network typically reach up to 80% LTV with a fixed expense ratio. With an accountant-prepared ratio, the ceiling is typically 75%. That is for cash-out on a primary residence or second home. It is not the purchase ceiling. Whether the higher income is worth five points of leverage depends on what is limiting your file: your DTI or your equity.

How Does the Preparer Arrive at Your Ratio?

A good preparer starts from your books, not from a target number. The ratio comes from your profit-and-loss statement and your Schedule C, divided by gross revenue. A sole proprietor’s ratio is usually built from these pieces:

• Gross revenue: everything the business billed or collected for the period.
• Operating costs: supplies, subcontractors, software, advertising, vehicle costs, insurance, and similar items.
• Non-cash items: depreciation and similar write-offs that reduce taxable profit without draining cash. Preparers and lenders treat these differently, so the preparer should state how they were handled.
• Owner draws: money you pay yourself. These are not an expense of the business.

The preparer states the result as one percentage for a specific period. That period should line up with your statement window.

Then comes reconciliation. An underwriter compares the certified ratio against your profit-and-loss statement and your tax records. If the letter says costs are 20% and your return shows deductions that imply far more, expect questions. A ratio that sits well below what the records support can sink the letter. A ratio that ties out to the records and fits your type of business tends to hold up. This is the biggest trust issue with the whole tool, so do not push your accountant toward a number the books do not support.

Is a Letter Worth Getting?

It is worth it when your real expense load sits clearly below the default factor and income is what limits your file. It is not worth it when your costs run near or above the default, or when you are not income-constrained.

Run this quick self-check:

• Does your profit-and-loss statement show costs well below the lender’s default?
• Is your DTI the thing holding the loan back, not your down payment or credit?
• Are most of your deposits landing in a business account, where the factor applies?
• Is the property owner-occupied, so that personal income is what the lender weighs?

If you answer yes to most of these, the letter is probably worth the preparer’s time. Fees vary by preparer, and Lendmire does not publish a figure, but a letter is usually a small cost next to what a meaningful income difference can do for a file. If you answer no to most, skip it.

What Must the Letter Contain?

Lenders want to see that a real, independent professional stands behind the number. Programs differ on exact wording, but a letter typically includes these fields:

Self-certification by the borrower does not count. The signer should be a CPA, an enrolled agent, or another qualifying preparer your lender’s program accepts, and the preparer should be independent from you. Lenders also want the letter to be recent when the file is reviewed, and a stale date is a common reason to get a letter sent back.

How Do You Ask Your Accountant?

Ask for a certified expense ratio that covers your statement window. Be specific about what the lender needs, and do not suggest a number.

A short request works well. Tell your preparer the loan program asks for a letter certifying your business expense ratio as a percentage of gross revenue. Give the exact months of your statements. Ask for the preparer’s license type to appear on the letter, and ask them to sign and date it.

Raise two things early. First, confirm the preparer is comfortable certifying a ratio, since some decline to do so. Second, agree on fees before work starts. Then send your lender’s loan officer a draft before you finalize, so the wording matches what the program accepts. A letter that misses a required field costs you a second round with your accountant.

Where Does the General Rule Break?

The rule is that a letter lifts business-account income on a bank statement loan. These edge cases are where it stops working.

DSCR loans. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Your deposits are not part of the calculation, so a CPA letter has nothing to raise. If you are buying a pure rental, the DSCR route often fits better. The complete DSCR loans guide explains how that qualification works. Never assume a letter helps a DSCR file.

Personal statements. Many sole proprietors deposit client payments straight into a personal account. Programs often apply a lighter factor, or none, to personal-account deposits, since costs were paid before the money arrived. The letter may then matter less. Some underwriters still ask for an accountant’s letter on personal statements, so ask your loan officer before you pay for one.

Large or one-off deposits. These read as warning signs. The underwriter will want an explanation and will usually exclude them from the average.

A program that rejects the letter. Some programs apply their flat factor regardless. Others accept only a profit-and-loss statement from a tax professional instead of a haircut.

Traditional personal-income documentation alongside statements. Some programs change how they treat the file if you also provide traditional personal-income documentation or transcripts, and a few make the file ineligible for the bank statement product. Do not assume. Ask which documents the program wants before you submit anything.

Commingled accounts. If personal and business money mix in one account, underwriters struggle to apply a factor cleanly. Opening a separate business account for future statements often simplifies the file.

Which Loan Type Does This Fit?

A bank statement loan with a CPA letter fits best when your own income is the constraint and the home is owner-occupied. Occupancy decides which disclosure rules apply. An owner-occupied file, meaning a primary residence 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. Keep the two apart. The regulations behind this are mostly about verification, and the CFPB’s compliance guide confirms that bank account statements count as acceptable third-party records. The expense factor itself is a lender convention, not a rule.

Here is how the network’s leverage typically breaks down, subject to lender guidelines:

Loan sizes typically run from $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment. Stronger files earn the top of each range. The asset-depletion route is reviewed against liquid assets instead of deposits, so it is another path when deposits look uneven.

For a second home, Lendmire’s piece Does a CPA Letter Raise Income on a Second-Home Bank Statement Loan? covers the extra points.

Scaling matters too. Under bank statement qualification, every added mortgage stacks against the same personal income base. DSCR files are reviewed property by property. An investor adding several rentals usually ends up on the DSCR side for that reason, while the bank statement loan covers the owner-occupied home. Tax treatment varies; consult a qualified professional.

Why Do Letters Get Rejected?

Most rejections come from a short list of avoidable problems:

• Wrong period. The letter covers months that do not match your statements.
• Wrong signer. The preparer is not a credentialed professional the program accepts, or is not independent.
• Unsupported ratio. The number does not tie to your profit-and-loss statement or tax records.
• Stale date. The letter is too old by the time the file is reviewed.
• Missing fields. No stated percentage, no tax ID, or no license type.
• Wrong account type. The letter targets a factor that does not apply to personal-account deposits.

A practitioner habit that helps: get the lender’s letter requirements in writing before you engage your accountant. It saves a round of revisions.

If You Are Self-Employed and Weighing Your Options

Lendmire is a mortgage broker that arranges financing through select lenders in its wholesale network, and the consumer mortgage side is available in 16 states. Every file is underwritten individually by the lender, and nothing here is a commitment to lend. Reach the team at 828-256-2183 or request a quote.

The sharpest question to bring to your accountant is not how low the ratio can go, but how low it can honestly go.

About Lendmire

Lendmire — NMLS# 2371349 — is a DSCR and non-QM mortgage brokerage with investor loan programs in 41 markets, including Washington, D.C. DSCR eligibility is commonly reviewed by the lender around property-level rent rather than personal income documentation, subject to lender guidelines, and the brokerage helps arrange financing for LLC-owned portfolios beyond conventional financed-property limits. Recognized by Scotsman Guide as a Top Mortgage Workplace in 2025 and 2026.

References

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

2. IRS Instructions for Schedule C

3. CFPB Ability-to-Repay and Qualified Mortgage Small Entity Compliance Guide