Expense Factor Replace A CPA Letter — The Quick Read: No. The expense factor is a lender’s automatic assumption about your business costs. A CPA letter is the document that can override that assumption with a real number. They work together in the same calculation — one is the default, the other is the correction. If you skip the letter, the default factor stands, and it usually costs you qualifying income.
That’s the short version. The rest of this explains why the two aren’t interchangeable, how the math actually moves, and where a CPA letter helps — or hurts — depending on your business.
Key Terms Defined
Expense factor: the percentage of your business bank deposits a lender assumes went to operating costs before counting the rest as income.
CPA letter: a written statement from a licensed accountant certifying your actual historical expense ratio, submitted to replace the lender’s default assumption.
Bank statement loan: a mortgage that qualifies a self-employed borrower using deposit history instead of traditional personal-income documentation.
Business-purpose loan: a loan made to an investor for a rental property rather than a home they live in; it’s underwritten differently than an owner-occupied mortgage.
Reserves: the number of months of mortgage payments a borrower must have left in savings after closing.
What the Expense Factor Actually Does
The expense factor is the number a lender plugs in when it has no better information about your business costs. Nothing more, nothing less.
On a business bank statement loan, the lender adds up your eligible deposits over a set window, then multiplies by an assumed expense percentage to strip out what it thinks went to overhead. What’s left is your qualifying income. Trade coverage of non-QM lending has described this same mechanic across the industry: apply a flat expense ratio — often around 50% — to average monthly deposits, and the remainder becomes the income the file is built on, as Scotsman Guide has reported.
That default number isn’t measuring your business. It’s a placeholder. A law firm with almost no overhead and a small retail shop with heavy inventory costs can land on the same default factor even though their real expense ratios have nothing in common. That’s the entire reason a CPA letter exists.
What A CPA Letter Actually Does — And Doesn’t
A CPA letter replaces the guess with a documented number. It doesn’t replace the bank statements, and it doesn’t replace the file’s other required documents.
Across the wholesale programs Lendmire places files with, a CPA-certified ratio can stand in for the fixed default — but only when it’s built correctly. The letter has to come from a licensed preparer, cover the same time period as the bank statements being used, and confirm the preparer actually has knowledge of the borrower’s business finances. Read Lendmire’s walkthrough on using a CPA letter to lower the expense factor for the mechanics of building one correctly.
What it doesn’t do is stand alone. A borrower still submits full bank statements, still gets an income calculation run through DTI and reserves, and still goes through the same underwriting steps as anyone else on the program. The letter changes one input — the expense percentage — not the whole file.
Why One Doesn’t Replace The Other
They solve different problems. The expense factor is a math shortcut. The CPA letter is evidence.
Think of the expense factor as the lender’s fallback position — the number it uses when nobody has given it anything better. The CPA letter is what a borrower brings to argue for a different number. Without the letter, the fallback wins by default. With a well-built letter, the documented ratio takes its place.
This is also why “expense factor vs. CPA letter” is the wrong framing entirely. It’s not a choice between the two — it’s a sequence. The lender starts with the default. The borrower, if they choose, submits documentation to move off it.
What A CPA Can — And Can’t — Certify
Here’s where a lot of borrowers get tripped up: not every accountant’s note qualifies, and CPAs themselves are restricted in what they’re allowed to sign.
A CPA can certify a historical, factual expense ratio pulled from records they’ve already reviewed. What a CPA cannot do is predict future income, vouch for creditworthiness, or offer any kind of assurance about ability to repay. According to Ignition Tax, these kinds of forward-looking “comfort letters” cross professional lines that CPAs are bound by under AICPA standards — the accounting profession’s own ethics rules only allow assurance through specific, regulated engagements like audits or agreed-upon procedures, not informal letters written for a lender.
That distinction matters practically. If a CPA letter reads like a promise about the borrower’s future finances, it’s not usable — and asking a CPA to write one that way puts the accountant in a bad spot professionally. An usable letter states a fact about the past: what percentage of this business’s revenue, historically, went to expenses. That’s it. Lendmire’s guide on using a CPA letter to lower the expense factor covers what a compliant letter needs to say.
How This Actually Plays Out On A File
Across the bank statement and jumbo bank statement programs Lendmire’s wholesale network offers, income is built from 12 or 24 consecutive months of statements, and the expense treatment depends on the account type and business structure.
Personal account deposits are treated differently than business account deposits — the expense factor mechanic described above only applies to the business side. On business statements, most programs in Lendmire’s network start with a fixed ratio tied to how the business is structured, with the percentage scaling based on employee count and whether the business sells a physical product versus a service. A CPA-provided ratio, where documented correctly, can replace that fixed number. Some programs also allow a profit-and-loss approach instead, capped at a set percentage of revenue, which is a related but separate documentation path.
One detail that trips people up: transfers from the borrower’s own business into a personal account typically count at full value, not at a discounted rate. That’s a different mechanic than the expense factor and worth knowing before assuming every deposit gets haircut the same way.
Bank statements have to be consecutive — a printed transaction history or account summary generally won’t substitute for actual statements. And business ownership of at least 25% is typically required to use business account statements at all.
Tax treatment on any of these structures can depend on how funds are used and how the property is held; investors should keep clear records and talk to a qualified tax professional before relying on any deduction.
Sizes And Leverage On These Files
Bank statement and jumbo bank statement loans through select programs in Lendmire’s wholesale network run from $300,000 to $30,000,000 — but not on one ladder. A portfolio non-QM bank-statement program carries files to $6,000,000. A separate bank portfolio program, built for twelve-month-statement files, has its own leverage ladder above that: 65% loan-to-value to $5,000,000, 60% to $10,000,000, and 55% to $30,000,000, with interest-only capped at 60% or the band’s ceiling, whichever is lower.
Leverage on a primary residence steps down as the loan gets bigger. A few reference points from select programs, all subject to full underwriting:
| Size Band | Primary Residence | Investment Property |
|---|---|---|
| $300K–$1M | 90% (680+ credit) | 85% (700+ credit) |
| $2M–$2.5M | 80% (720+ credit) | 80% (720+ credit) |
| $3.5M–$4M | 75% (760+ credit) | 60% (680+ credit) |
Above $4,000,000, every file — regardless of occupancy — moves to case-by-case review before submission, rather than a flat published leverage number. Loans above $3,500,000 on a primary residence, or $3,000,000 on a second home or investment property, also layer in additional overlays: a 700 credit floor, a clean recent payment history on housing debt, and longer seasoning after any past credit event. Second homes and investment properties generally run a few points lower in leverage than a primary residence at the same size.
Reserve requirements scale with loan size too — typically three months of payments held in reserve up to $500,000, six months up to $1,500,000, and nine months above that, plus two additional months per other financed property up to a twelve-month cap. First-time investors are usually held to twelve months regardless of loan size. Credit floors run 660 on the portfolio program, 680 on the bank program, and 700 once a file crosses into super-jumbo territory. For borrowers weighing whether this program fits a larger purchase, Lendmire’s piece on needing a CPA for a super jumbo bank statement loan walks through when the letter question gets more important as loan size climbs.
When None Of This Applies
If you’re buying the property purely as a rental and don’t need your personal income to qualify, the expense factor and CPA letter mechanic doesn’t enter the picture at all.
DSCR loans qualify primarily on the property’s own rental income covering the payment, subject to lender guidelines — not on your personal bank deposits, traditional personal-income documentation, or business expense ratio. 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. There’s no expense factor to argue about, because personal income was never part of the equation. Lendmire’s complete DSCR loans guide breaks down how that qualification model works if a straight rental purchase fits your situation better than a bank statement file.
For an investor whose business runs lean — a real estate agent, consultant, or property manager with low overhead — this matters because the fixed expense factor discount doesn’t reflect actual margins. If that same investor is buying a rental rather than a primary residence, moving to a DSCR structure sidesteps the whole personal-income conversation, expense factor included.
Common Mistakes Worth Avoiding
A few misconceptions come up on nearly every self-employed file:
- Thinking the CPA letter replaces the bank statements. It doesn’t. The statements remain the core document; the letter only adjusts one number inside the calculation.
- Assuming any accountant’s note will work. A usable letter has to state a historical fact, not offer assurance about the future — a distinction CPAs are bound by under their own professional standards.
- Treating the expense factor as negotiable with the lender. It isn’t a negotiation. It’s a documentation exercise — either you supply a qualifying CPA letter or P&L, or the default number applies.
- Assuming a CPA letter always helps. If a borrower’s actual expenses run higher than the program’s default ratio, a CPA letter can lower qualifying income instead of raising it. It only helps businesses running leaner than the default assumes.
- Confusing this with DSCR underwriting. The expense factor and CPA letter mechanic is specific to personal-income bank statement programs. DSCR files don’t use either one.
Frequently Asked Questions
Do I need both bank statements and a CPA letter?
Yes. The letter adjusts the expense ratio applied to your deposits — it doesn’t replace the statements themselves. A complete file still includes 12 or 24 months of statements plus whatever documentation supports the ratio you’re using.
Can my regular tax preparer write the letter?
Generally, yes, as long as they’re a licensed CPA, enrolled agent, or qualifying preparer with actual knowledge of your business records — and the letter is scoped as a factual historical statement, not a prediction about future income or ability to repay.
What if my CPA won’t certify a lower ratio than the program default?
Then the default expense factor applies. Programs in Lendmire’s network won’t accept a letter that oversteps what a CPA is professionally allowed to certify, so if your accountant isn’t comfortable putting a specific historical ratio in writing, the file typically reverts to the fixed percentage.
Does a lower expense factor always mean a bigger loan?
Only if your actual expenses are genuinely lower than the program’s default assumption. If your real costs run higher, documenting them can reduce qualifying income instead of raising it — which is why this only helps certain businesses.
Is this the same thing as DSCR loan qualification?
No. DSCR loans qualify off the rental property’s own income, not personal bank deposits, so there’s no expense factor or CPA letter involved in that calculation at all.
If you’re weighing a bank statement file against a straight rental purchase, Lendmire can help you compare how each option treats your income, your leverage, and your documentation before you commit to one path.
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 focused on investor financing, arranging DSCR loans in 39 states plus Washington, D.C. — 40 markets total. Qualification is based on the property’s income rather than personal income documentation, subject to lender guidelines, making it a fit for LLC-held rentals and scaling portfolios. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Scotsman Guide — “These Loans Should Take Center Stage”
2. Ignition Tax — AICPA Rules for CPA Comfort Letters
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.
