Expense Factor And CPA Letter Shape P&L Income — The Quick Read: Lenders assume a portion of every business deposit goes to overhead before any of it counts as income. That assumed overhead is the expense factor, and on most bank-statement files it defaults to a fixed percentage regardless of what the business actually spends. A CPA letter replaces that default with the business’s real, documented expense ratio. If the real ratio runs well below the default, qualifying income goes up — sometimes by a wide margin.
Key Terms Defined
Expense factor is the percentage of gross business deposits a lender treats as overhead before counting the rest as qualifying income.
Expense ratio is the same concept stated from the business owner’s side — actual operating costs divided by gross revenue.
CPA letter is a signed statement from a CPA, enrolled agent, or qualifying tax preparer that documents a business’s actual expense ratio, replacing a lender’s default assumption.
P&L-only loan is a program that qualifies a borrower off a CPA-prepared profit-and-loss statement instead of analyzing raw bank deposits.
Bank-statement loan is a program that qualifies a borrower off deposit activity in personal or business accounts, with an expense factor applied to business deposits.
Comfort letter is a different, and legally risky, document where a CPA is asked to attest to a borrower’s repayment-capacity a loan — not the same thing as an expense-ratio letter, and something most CPAs will decline to sign.
Why Lenders Apply an Expense Factor at All
A business bank account mixes revenue with the cost of running the business. Lenders can’t tell payroll from profit just by reading deposit totals, so they apply a haircut before counting any of it as income.
Select lenders in Lendmire’s wholesale network use a tiered scale for this haircut: 20% for a service business with no employees, 40% for a business with one to five employees, and 50% for a business with six or more employees — or any business that sells a product instead of a service. These are typical numbers for most files, not fixed rules, and they’re always subject to underwriting review. Personal-account deposits usually skip this haircut entirely. The thinking is that the borrower already paid business expenses before moving the money into a personal account. Transfers from the borrower’s own business into a personal account count fully — at 100% — toward qualifying income.
The tiered structure already does some of the work a CPA letter would otherwise do. A solo consultant with no staff starts at a much better position than a six-employee retail operation. But even the lowest default tier can overstate real overhead for a genuinely lean business — which is exactly the gap a CPA letter is built to close.
What Actually Changes When a CPA Letter Is Added
A CPA letter replaces the lender’s assumed expense ratio with the business’s actual, documented one. Say a service business runs at a real expense ratio of 20-30% — this is common for consultants, attorneys, and medical practices. In that case, the letter can raise qualifying income well above what the fixed-tier default would allow.
The math is simple in concept: qualifying income is gross eligible deposits, divided by the number of statement months, after the expense ratio is subtracted. Lower the ratio, and more of each dollar deposited counts toward the number an underwriter uses to size the loan. A borrower moving from a 50% assumed ratio to a documented 25% ratio isn’t getting a small bump — they’re roughly doubling the deposit total that counts.
That’s the upside case. The letter only helps when the real ratio is meaningfully lower than the default tier the borrower would otherwise land in. A six-employee business that actually spends 55% of revenue on overhead gains nothing from a CPA letter — the fixed 50% tier is already more generous. Before requesting one, it’s worth asking the accountant for a rough estimate of the real ratio. If it lands well under the applicable default tier, the letter is worth pursuing. If it’s close to or above that tier, skip it and save the paperwork.
P&L-Only vs. Bank-Statement-Plus-Letter: Two Different Products
These two paths get confused constantly, and they work differently under the hood.
| Feature | Bank-Statement + CPA Letter | P&L-Only |
|---|---|---|
| What drives income | Deposits, minus expense ratio | Net income stated on the P&L itself |
| Deposit analysis | Still performed | Skipped entirely |
| CPA’s role | Certifies an alternate expense ratio | Prepares the entire income statement |
| Cap on income used | Documented ratio applies to deposits | Generally capped near 80% of stated income on most files |
| Best fit | Borrower has clean deposit history, wants a better ratio | Borrower’s real income doesn’t track cleanly to deposits |
On a P&L-only file, there’s no separate expense-ratio letter. The P&L itself serves as the documentation, since a credentialed preparer already created it. Underwriting takes the net income over a 12- or 24-month period and divides it by the number of months. That gives the qualifying figure, which is generally capped at around 80% of the stated amount on most programs. Add-backs are limited to what’s already shown on the P&L — this isn’t a full tax-return add-back process.
What a Letter Needs to Actually Hold Up
Underwriters check consistency, not just the number on the page. A letter that fails any of these usually gets rejected outright rather than partially credited.
The letter needs to identify the preparer by full name, professional title, license or credential number, and firm contact information, and that credential gets verified again at closing — not just at application. It needs to identify the business by legal name and EIN or DBA. It needs to cover the exact same time period as the bank statements it’s meant to support. And the business name needs to match across every document in the file — an abbreviated name on one page and a full legal name on another is a common way files get flagged.
A vague letter that doesn’t state a methodology, or one that doesn’t cover the full statement period, tends to get rejected rather than partially accepted — leaving the borrower stuck with the default ratio and some added underwriter skepticism to overcome. An unsigned letter, or one whose dates don’t line up with the supporting bank statements, can sink a file that was otherwise clean.
Business accounts generally need at least 25% ownership documented before their deposits count at all, which is worth confirming before assembling any of this paperwork.
The Letter Underwriters Want vs. the Letter a CPA Can’t Sign
This is where borrowers most often ask for the wrong document. An expense-ratio letter states a fact: a percentage, and the method used to calculate it. A “comfort letter” asks a CPA to attest to something else entirely — the borrower’s ability to repay a loan in the future.
Most CPAs won’t sign that second type of letter, and there’s a good reason why. Predicting future income or judging someone’s creditworthiness falls outside what a CPA is licensed to do. It also isn’t part of a compilation, review, or audit engagement. Professional guidance backs this up: neither agency’s residential seller guide requires a comfort letter at all, according to AICPA guidance on third-party verification letters. Separate industry commentary on attestation standards raises similar concerns about liability when CPAs sign letters confirming someone’s ability to repay a loan outside a proper engagement. You can read more in The Tax Adviser.
An expense-ratio letter avoids that problem because it stays factual. It states what the business spends as a share of revenue and how that number was calculated. It says nothing about the borrower’s future ability to pay anything back. That distinction is why a well-drafted expense-ratio letter is something a CPA can reasonably sign, while a solvency-style comfort letter usually isn’t.
When the Whole Question Doesn’t Apply
An investor buying a rental property doesn’t need any of this — as long as the lender reviews the deal based on the property’s income, not the borrower’s personal finances. That’s the whole idea behind a DSCR loan. It qualifies mainly on whether the property’s rental income covers the payment, subject to lender guidelines. There’s no need for personal deposits, a P&L, or an expense-ratio discussion at all.
On a DSCR file, the appraiser documents market rent using Fannie Mae’s Single-Family Comparable Rent Schedule, Form 1007 — a form non-QM lenders borrow even though these loans never get sold to Fannie Mae. That single document does the job a CPA letter and a stack of bank statements would otherwise do on a personal-income file.
This is a real fork for a self-employed investor to think through before spending time or money on a CPA letter. If the target property has strong rental income relative to its payment, a DSCR path may sidestep the expense-factor question entirely. Lendmire’s complete DSCR loans guide walks through how that qualification path works property by property.
For borrowers who do go the personal-income route — often because the transaction is a primary residence rather than a rental — the same file mechanics that govern the expense factor also touch reserve requirements on a CPA P&L or 1099 file, since reserves on most files scale from three months up to nine months depending on loan size, plus additional months for other financed properties. Credit floors on these programs typically run around 660, stepping up to roughly 700 on the largest files, with debt-to-income allowed up to about 50% on most files — all figures that move with the specifics of the file and program, subject to underwriting.
High-net-worth borrowers who use bank-statement or P&L income can get loans ranging from roughly $300,000 to $30 million, depending on the wholesale program in Lendmire’s network. As the loan size goes up, the allowed leverage goes down. The expense-factor issue matters most in the middle of that range. That’s where a founder, physician, or attorney’s normal personal-income paperwork often understates their real income. Using a documented expense ratio instead of a default one can change what the file can support.
Common Mistakes That Sink These Files
Asking for a CPA letter without checking the real ratio first is the most common one — a poorly documented request can leave a borrower worse off than if they’d never asked. Letting the P&L period drift from the bank statement period is another. Using an abbreviated or inconsistent business name across documents is a small thing that causes outsized delays. And asking a CPA to sign a comfort letter instead of a factual expense-ratio letter can stall a file for weeks while a new document gets drafted.
Frequently Asked Questions
Can a business owner just estimate their own expense ratio instead of getting a CPA letter? No. Self-certification isn’t accepted on any program that requires a CPA letter — the letter has to come from a credentialed third party, typically the same preparer who has filed the borrower’s business income documentation.
Does a newer business automatically get disqualified from using a CPA letter?
Not automatically, but a newer business usually needs stronger compensating factors elsewhere in the file — higher reserves, a cleaner credit profile, or a well-documented CPA letter showing the actual expense ratio rather than relying on time in business alone.
Is there a floor on how low an expense ratio can go, even with a strong CPA letter?
Yes. Expense ratios don’t go to zero — even a low-overhead business is expected to carry some irreducible cost, and lenders build a floor into their guidelines rather than accepting a ratio close to zero.
Do personal bank statements use the same expense-factor logic as business statements?
Not exactly. Personal-account programs typically apply their own fixed ratio regardless of business type, since personal deposits are assumed to already reflect money left over after major business expenses were paid.
If I qualify for both a P&L program and a DSCR loan, which one should I use?
It depends on the property and the goal. If the subject property has strong rental income relative to its payment, a DSCR loan often produces a cleaner path since it skips the personal-income conversation entirely — but a P&L or bank-statement program may still be the better fit for a primary residence or a property with thinner rental coverage.
Are you buying or refinancing a rental property and want to see how the numbers work? Lendmire can help you compare DSCR loan options. We’ll look at the property’s income, your credit profile, available leverage, and your goals as an investor.
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 built around DSCR investor lending, with programs available in 40 markets, including Washington, D.C. DSCR lenders commonly evaluate rental-income coverage instead of personal income paperwork — a practical fit for LLC-owned and multi-property investors. Terms vary by lender, property, leverage, and program. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. AICPA Insurance Programs – Third Party Verification Letters
2. The Tax Adviser: Concerns About CPA Letters to Third Parties
3. Fannie Mae Single Family Comparable Rent Schedule (Form 1007)
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.
