Expense Factor Letter On A Bank Statement Loan — The Quick Read: An expense factor letter is a document a CPA or tax preparer signs to certify what percentage of a business’s revenue actually goes to overhead. Lenders use it to override their default expense assumption when calculating qualifying income from bank deposits. It can raise or lower the income a self-employed borrower qualifies with, without changing a single dollar of actual deposits. It applies mainly to business accounts, not personal ones, and it’s optional, not required.
Self-employed borrowers who don’t want to hand a lender two years of traditional personal-income documentation rely on bank statement loans instead. But deposits into a business account aren’t income — some of that money already has payroll, rent, or supplies spoken for. That’s where the expense factor comes in, and where the letter can change the math in a borrower’s favor.
How the Expense Factor Actually Works
The default expense factor is a flat percentage the lender subtracts from gross business deposits before counting the rest as qualifying income. It’s a conservative placeholder, not a measurement of the borrower’s real costs.
Say a lender’s standard assumption is 50%. Average monthly gross deposits get cut in half before that number ever reaches an underwriter’s qualifying-income line. Across the wholesale network Lendmire places files with, this default typically scales with business type and headcount. A service business with no employees often lands on a lower ratio than a product business with a payroll to run. The point of the flat number is speed: underwriting gets a documented starting point without needing traditional personal-income documentation or a bookkeeper on the phone.
The problem is that flat numbers don’t fit every business. A solo consultant with almost no overhead and a six-employee retail shop don’t have the same cost structure, even if their gross deposits look identical on paper.
Why the Letter Exists — and Who Signs It
An expense factor letter exists to replace the lender’s flat guess with the business’s actual number. A CPA, enrolled agent, or qualifying tax preparer reviews the real financials and certifies the true expense-to-revenue ratio in writing, on their letterhead.
Once that letter is in the file, underwriting swaps the certified ratio in for the default. If the certified ratio is lower than the lender’s flat assumption, qualifying income goes up — sometimes by a meaningful margin. The swing between a generic default and a documented lower ratio can change the loan amount a borrower supports.
The letter typically has to identify the preparer, state the exact expense ratio, and cover the same period as the bank statements being analyzed. A letter dated for the wrong tax year, or covering months that don’t line up with the statements in the file, doesn’t answer the question underwriting is actually asking.
Some files skip the letter entirely and lean on a profit-and-loss statement instead, or the business’s most recent tax return as backup support for the certified number.
Key Terms Defined
Expense factor: the percentage of gross business deposits a lender assumes goes to overhead before what’s left counts as qualifying income.
Expense factor letter (or CPA letter): a signed document from a tax preparer certifying a business’s real expense ratio, used to override the lender’s default assumption.
Business-purpose loan: financing for a non-owner-occupied investment property, reviewed under different underwriting standards than an owner-occupied mortgage. DSCR loans fall in this category.
DSCR (debt-service coverage ratio): a measure of whether a rental property’s income covers its own mortgage payment, used instead of personal income documents on investor loans.
P&L-only qualification: an alternate documentation path where a CPA-prepared profit-and-loss statement stands in for both bank statements and a separate expense letter.
Does It Matter If the Money Sits in a Personal Account?
Yes — personal accounts generally skip the expense-factor haircut entirely. Money that’s already landed in someone’s personal checking has typically already survived the business’s own costs, so most programs count those deposits at or close to face value.
That creates a real branch point for a self-employed borrower. The same income, routed through a business account, gets discounted by an expense factor. Routed through a personal account, it often doesn’t. That’s why account structure — not just income level — shapes what a borrower qualifies for.
Commingled accounts muddy this. If business revenue lands directly in a personal account, a personal bank-statement program may apply; if the accounts are kept cleanly separate, a business program typically governs instead. Mixing the two without a clear pattern can slow underwriting down while the lender sorts out which analysis fits.
Pass-through accounts cut the opposite direction. A subcontractor whose account shows large draws that immediately flow back out to crews or suppliers may need a higher effective expense factor — or those pass-through deposits may need to be excluded from the average altogether rather than treated as revenue.
What Documents Actually Go in the File?
A bank-statement file built around an expense factor letter typically includes three pieces: the bank statements themselves, the letter, and sometimes supporting paperwork.
- 12 or 24 consecutive months of business or personal bank statements — most programs Lendmire places files with use 12 months on some tracks and up to 24 on others, and consecutive months matter; a transaction-history printout doesn’t substitute.
- The expense factor letter, on the preparer’s letterhead, naming the preparer, stating the certified ratio, and matching the exact date range of the statements.
- A supporting profit-and-loss statement or recent business tax return, when the preparer references one to back the certified figure.
For businesses with more than one owner, qualifying income from business deposits is generally prorated by ownership percentage before the expense factor is applied at all. A borrower who owns 50% of a business doesn’t get credit for 100% of its deposits.
Because these are alt-doc files, a person reviews them by hand instead of an automated system. This gives underwriters flexibility for unusual income patterns. But it also means a messy or inconsistent file invites more questions, not fewer.
Does This Apply to Rental Property Purchases?
Mostly, no. Investment-property purchases financed with a DSCR loan qualify mainly on the property’s own rental income covering the payment, subject to lender guidelines. They don’t qualify based on the investor’s personal or business bank deposits. So for an investor buying a rental, the conversation about expense factors and their own business accounts often disappears entirely.
That’s a meaningful branch point for anyone building a portfolio. A self-employed investor with strong but hard-to-document income might still need a bank-statement loan — with all the expense-factor mechanics above — to buy or refinance a primary residence. But the rental acquisitions themselves usually run better through Lendmire’s complete DSCR loans guide, where the qualifying question is whether the lease covers the payment, not what percentage of the owner’s consulting revenue went to overhead last year.
Where a DSCR file does need an outside opinion of market rent, appraisers document it on the Single-Family Comparable Rent Schedule — Fannie Mae’s Form 1007, or Form 1025 for 2-4 unit properties. That’s agency terminology the appraisal industry uses broadly; it doesn’t mean the DSCR loan itself gets sold to Fannie Mae.
How This Plays Out at Higher Loan Amounts
For high-net-worth borrowers whose traditional personal-income documentation understate real income, expense factor mechanics show up most on larger primary-residence and second-home files, where leverage steps down as the loan size climbs. Across the wholesale network Lendmire works with, size runs from roughly $300,000 up to $30,000,000 through two separate programs — a portfolio bank-statement product carrying files to about $6,000,000, and a bank-portfolio product carrying twelve-month-statement files on its own ladder to $30,000,000, running 65% at the lower end down toward 55% loan-to-value near the top and interest-only capped at 60% or the band’s ceiling, whichever is lower.
On a primary residence, leverage typically runs as high as 90% loan-to-value at the smallest sizes, stepping down to roughly 85% around the $1-2 million range, 80% near $2-3 million, and 75% for the strongest credit tier up to about $4 million. Above $4,000,000, every file gets reviewed case by case before it’s even submitted — never a flat “up to” number at that size. Second homes and investment properties typically run about five points lower in leverage at every size band.
When an investor has a documented expense factor lower than the lender’s default, it does more than just produce a bigger number on paper. That higher qualifying income can be the difference between clearing a leverage tier’s credit and reserve requirements, or landing in a lower band with a bigger down payment. Reserve requirements on files like these generally run from a few months of payments at smaller loan sizes, up to nine months or more as the loan amount grows, plus additional months for other financed properties.
Files that use business bank statements instead of a P&L or accountant-provided ratio often come in with the messiest math. Deposits can look strong on paper but include large one-off transfers, pass-through funds, or seasonal spikes that don’t reflect real recurring revenue. In Lendmire’s experience, the stronger files are the ones where the borrower loops in their CPA before applying. That way, the expense ratio letter and the bank statements tell the same clean story instead of contradicting each other mid-underwriting.
Common Misconceptions
“This is the same as a pre-2008 stated-income loan.” It isn’t. Deposits are independently verified against actual bank statements, not simply declared by the borrower with no support. The expense factor and CPA letter add a documented, defensible layer to the income math.
“A CPA letter is always required.” It’s optional. Many bank-statement files close on the lender’s default expense factor with no letter at all — the letter only matters when a borrower’s real costs run lower than that default.
“The borrower picks their own expense factor.” No — the lender sets the default, and it can only move with documented, verifiable numbers from a qualified preparer, not the borrower’s own estimate.
“A CPA letter guarantees a better outcome.” It doesn’t guarantee approval or a specific ratio. The letter has to meet the program’s own documentation standards, and underwriting still reviews the whole file — deposit consistency, one-off deposits, ownership structure — independent of the certified ratio.
DSCR loans are designed for non-owner-occupied investment properties. Because they’re business-purpose investor loans, they’re reviewed differently from a standard owner-occupied mortgage, which is part of why the expense-factor conversation mostly disappears once a purchase moves into that lane.
Frequently Asked Questions
Does an expense factor letter apply to a DSCR loan? Rarely, since DSCR loans qualify primarily on the subject property’s rental income covering the payment, not the investor’s personal or business deposits, so the expense factor conversation typically stays confined to bank-statement financing on a primary residence or second home.
Can a lower expense factor increase my loan amount? It can raise qualifying income, and a higher qualifying income can support a larger loan amount on some files — but the outcome still depends on credit, reserves, leverage tier, and the specific program’s guidelines, subject to full underwriting.
What happens if my business and personal funds are mixed together? Commingled accounts create ambiguity that can slow the file down. If business revenue lands directly in a personal account a bank-statement program may work; if the funds stay cleanly separate, a business program typically applies instead.
Does the letter have to match my tax year? It has to match the bank statement period being analyzed, which isn’t always the same as a calendar tax year. A letter covering the wrong window doesn’t answer what underwriting needs to know about that specific stretch of months.
Is a bank statement loan the same thing as an old stated-income loan? No. Deposits are verified against real bank statements over 12 to 24 months rather than taken on the borrower’s word, and the expense factor letter is one more layer of documentation, not a substitute for it.
If you’re weighing a bank-statement loan against a DSCR purchase for an investment property, Lendmire can help you compare options based on the property’s income, your credit profile, available leverage, and your broader goals as an investor.
For general background on non-QM growth and how these products compare to conventional underwriting, check out market data from Scotsman Guide’s coverage of non-QM lending trends. It shows non-QM loans made up roughly 5% of all originations in a recent year, up from 3% a few years earlier. Average borrower credit scores were near 776 — comparable to conventional borrowers. Roughly 15 million Americans, about 10% of the workforce, are self-employed. This is the underlying demand that drives these programs. For a point of contrast, the IRS Instructions for Schedule C explain how business income and expenses get reported on traditional income documents. Bank-statement underwriting is built to work around this standard framework.
Tax treatment can depend on how funds are used and how a property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
About Lendmire
Lendmire is a non-QM mortgage brokerage (NMLS# 2371349) arranging DSCR investor loans in 40 markets, including Washington, D.C., through wholesale and investor-lending channels. DSCR loans are evaluated by the lender on rental income rather than personal income, subject to lender guidelines — a fit for LLC-owned portfolios, self-employed investors, and operators scaling beyond conventional loan caps. Recognized as a Scotsman Guide Top Mortgage Workplace in 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 — Which groups are driving non-QM lending?
2. IRS — Instructions for Schedule C (Form 1040)
This article is part of Lendmire’s super jumbo bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Does A Super Jumbo Bank Statement Loan Need A CPA Expense Letter? · Can A CPA Letter Reduce The Expense Factor On A Second Home Loan? · How The Expense Factor Works On A Bank Statement Loan By Business Type?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.