Lower The Expense Factor On A Second-Home — The Quick Read: A bank statement loan turns business deposits into qualifying income after subtracting an assumed cost of running that business — the expense factor. Lower that factor, and more of your deposits count as income. Self-employed borrowers do this three ways: pick the right fixed ratio for their business type, bring an accountant’s letter, or submit a profit-and-loss statement. Each path has a different ceiling, a different cost, and a different failure mode.
Key Takeaways
- The expense factor is a percentage subtracted from business deposits before the lender counts the rest as qualifying income.
- Fixed ratios vary by business type and employee count — a small service business starts in a much better spot than a product business.
- An accountant’s letter or a profit-and-loss statement can move the ratio, but only in one direction relative to the business’s true costs.
- Second homes qualify on the borrower’s personal or business income only — the property’s own rental potential does not count.
- Above roughly $3,000,000 on a second home, extra credit and reserve overlays apply, and files move to case-by-case review.
Key Terms Defined
Expense factor (or expense ratio): the percentage of business deposits a lender assumes went to running the business, subtracted before the remainder counts as income.
Bank statement loan: a mortgage that qualifies a self-employed borrower using deposit history instead of traditional personal-income documentation.
Second home: a property the borrower occupies part of the year for personal use, not rented as a business, and typically financed without counting any rental income toward qualification.
Debt-to-income ratio (DTI): the share of gross monthly income already committed to debt payments, including the new mortgage.
Profit-and-loss statement (P&L): a document, often prepared by the borrower or an accountant, that lists business revenue and expenses over a set period.
Why Lenders Apply An Expense Factor At All
Deposits into a business account are not the same thing as personal income. A landscaping company that deposits a large sum every month still has to pay for fuel, equipment, payroll, and insurance out of that same account. The expense factor exists so the lender isn’t treating gross revenue as if it were take-home pay.
This is a documentation choice, not a federal formula. That gap is exactly why expense ratios differ across programs, and why a borrower has real room to influence the number.
Market-wide reviews of non-QM loan pools show many programs defaulting to a flat 50% expense ratio, with accountant letters occasionally certifying figures as low as 10% (VMC Asset Depositor LLC — SEC Form ABS-15G). Within select lenders in Lendmire’s wholesale network, the structure runs differently: fixed ratios are set by business type and employee count rather than one flat number across the board. A service business with no employees can start at a 20% ratio. One with one to five employees typically runs 40%. Larger service businesses and any product-based business default to 50%. Borrowers who don’t like their default tier have two other paths available, covered below.
Three Paths To Lower The Ratio
There are effectively three ways to influence what percentage of deposits gets counted against you. Each one trades paperwork for a possible improvement, though results vary and none guarantees a better number.
| Path | Requires | Works Best For | Risk |
|---|---|---|---|
| Fixed ratio by business type | No extra paperwork | Small service businesses, few employees | Product businesses default higher |
| Accountant-provided ratio | Letter from a CPA or tax preparer | Low-overhead businesses | High-cost businesses can end up worse |
| Profit-and-loss statement | A prepared P&L, capped at 80% | Borrowers with real, documented costs | Caps income more than a low fixed ratio |
Path one — take the fixed ratio. This is the path with the least friction. No accountant, no extra letter, just the business type and employee count doing the work. A sole-proprietor consultant with no staff clears the 20% tier automatically in most files. This is the fastest route on paper, but it only helps borrowers whose business already fits a favorable tier.
Path two — bring an accountant’s letter. An accountant or tax preparer can certify an actual expense ratio for the business, generally after reviewing or preparing the most recent tax return. The letter has to state the ratio plainly and can’t hedge with exclusionary language. This route helps borrowers whose real costs run well below their assigned fixed tier — think a consulting practice sitting at a 50% default because it has a handful of employees, when its actual overhead runs much lower.
Path three — submit a profit-and-loss statement. Some files use a P&L instead of, or alongside, bank statements. This method is capped at an 80% expense allowance, which means it can work against a borrower whose real costs are lower than that cap. It tends to fit borrowers whose actual costs are genuinely high and who can’t get a lower number any other way.
Where The Accountant Letter Helps — And Where It Backfires
A CPA letter is not automatically a good idea. It helps low-overhead businesses. But it can quietly hurt high-overhead ones. Bank statement loans fall under the non-QM category. The CFPB’s Ability-to-Repay/Qualified Mortgage rule under Regulation Z requires lenders to make a reasonable, good-faith judgment about repayment ability. It does not dictate how income gets calculated.
Picture two business owners with similar deposit patterns. One runs a small consulting shop with almost no overhead. The other owns a restaurant, where food costs, staff, and rent eat a large share of every dollar that comes in. The consultant’s accountant can likely certify a ratio well under the business’s fixed tier, boosting qualifying income. The restaurant owner’s accountant, reviewing the same books honestly, may certify a ratio well above the fixed default — which lowers qualifying income instead of raising it.
The rule of thumb: a letter only helps when the business’s real costs are lower than its assigned fixed ratio. If the numbers are close, or the business runs expensive, the letter can do more harm than good. This is the calculation worth running before paying for the paperwork, not after.
What Can Go Wrong On The File
Expense ratio decisions get checked after the loan closes, not just at application. Loan-level due-diligence reviews on non-QM securitization pools have flagged files where the ratio applied didn’t match the business type on record. In some cases, it also didn’t match the borrower’s own accountant letter. Once corrected, these mismatches produced debt-to-income figures far outside program limits (VMC Asset Depositor LLC — SEC Form ABS-15G). This kind of mismatch is one of the more common reasons a file gets kicked back for rework mid-process.
A few patterns tend to trip borrowers up:
- Choosing the wrong business classification — a shop that sells product and provides service can land in either tier depending on how it’s described.
- Letting large or one-off deposits skew the average. Loan proceeds, tax refunds, transfers between the borrower’s own accounts, and one-time asset sales generally get stripped out before the deposit average is calculated.
- Assuming an accountant letter always helps, without running the comparison first.
- Mixing personal and business deposits in a way that muddies which account the file should even use.
Transfers from the borrower’s own business into a personal account count in full — no ratio applied to those. That distinction matters because it changes which account statements are worth submitting.
How This Plays Out On A Second Home Specifically
A second home only is reviewed on the borrower’s personal or business income — not the property’s own rental potential. This is the structural point that separates second-home bank statement lending from an investment-property loan entirely.
Say a lake house or ski condo is being bought with the hope that occasional rental income will help cover the payment. That expectation doesn’t factor into the qualifying math on a second-home file. Appraisal forms like Fannie Mae’s Form 1007 rent schedule are used to establish market rent on investment properties. These generally don’t come into play on a second-home purchase, since there’s no rent figure being underwritten. If the plan really depends on rental cash flow covering the payment, that’s usually a sign the purchase fits an investment-property structure better than a second-home one. DSCR loans are built for non-owner-occupied investment properties. Because they’re business-purpose loans, they get reviewed differently than a standard second-home mortgage. The property’s own income — not the owner’s bank deposits — carries the file. Lendmire’s complete DSCR loans guide walks through that structure for anyone weighing the two paths. Final eligibility is subject to lender guidelines, credit approval, reserves, and property review.
For a genuine second home — one the borrower actually intends to use personally — the expense factor is where the qualifying math gets made or broken. Through select lenders in Lendmire’s wholesale network, second-home purchase leverage typically runs 85% in the $300,000 to $1,000,000 range with a 700 credit floor, stepping to 80% from $1,000,000 to roughly $2,500,000 depending on credit tier, then tightening further at higher loan sizes. Debt-to-income up to 50% is common on most files. Reserve requirements typically run 3 months of payments up to $500,000, 6 months up to $1,500,000, and 9 months above that, with additional months required per other financed property.
Above roughly $3,000,000 on a second home, tighter overlays generally apply. Lenders often want a higher credit floor, longer seasoning on any credit event, and no non-occupant co-borrowers. The strongest leverage tiers get reviewed case by case before submission, not approved on a flat percentage. That’s not a reason to avoid a higher-balance file. It’s a reason to expect a more individualized underwriting conversation.
Who This Strategy Fits — And Who It Doesn’t
This approach fits self-employed borrowers whose regular personal-income paperwork understates their real cash flow. That includes founders, physicians, attorneys, consultants, and other business owners. They often write off a lot for tax purposes but still show strong deposit activity. It works especially well for low-overhead service businesses. For these businesses, the gap between the fixed default ratio and their true costs can be wide.
It fits less well for high-overhead businesses — restaurants, contractors, and retail operations with heavy inventory costs. For these, an accountant letter is unlikely to help and may hurt. It also doesn’t fit a borrower whose real plan is to lean on the property’s rental income to make the payment work. That borrower is usually better served by looking at an investment-property structure. Options include a DSCR cash-out refinance or a straightforward DSCR purchase loan. With these, the property’s cash flow — not personal deposits — drives lender review.
Some borrowers have 12 months of clean, explainable business deposits. Their business type already lands in a favorable fixed tier. These borrowers often do best by simply taking the default ratio and skipping the extra paperwork. Other borrowers have costs that are murky, mixed with personal spending, or genuinely high. These borrowers are the ones most likely to need — and benefit from — Lendmire’s set the expense factor on a second home approach. They may also benefit from a closer look at when a CPA letter beats the default ratio.
This is not legal or tax advice. Every business’s expense structure and every borrower’s documentation is different, and readers should talk with a qualified accountant or tax professional about their own situation before choosing a documentation path.
Frequently Asked Questions
Can I use 24 months of statements instead of 12 to get a better ratio? The expense ratio itself doesn’t change based on the lookback period, but a longer window can smooth out irregular deposits that might otherwise look like unexplained income spikes. Twelve or twenty-four consecutive months are both commonly used, and the choice usually comes down to which period shows the more consistent deposit pattern.
Does personal bank statement income use the same expense factor? No. The expense ratio applies to business account deposits. Personal account deposits are generally averaged directly without any expense deduction, which is a completely different calculation path.
What if my business doesn’t fit cleanly into one category? This happens more than borrowers expect — a business that both sells product and provides service can land in different tiers depending on how it’s classified. In these cases, the classification gets worked out with underwriting directly, and a letter from an accountant can sometimes settle which tier applies.
Will a CPA letter always beat the fixed ratio? No, and this is the most common misconception. It only helps when the business’s real costs run below its assigned fixed tier. For a high-overhead business, a certified letter can raise the assumed expense percentage rather than lower it.
Can rental income from the second home ever help me qualify? Generally, no. Second-home qualification runs on the borrower’s personal or business income, not on the property’s rental potential. A purchase built around rental cash flow usually fits an investment-property loan structure instead.
Investors weighing a second-home purchase against income documentation questions like these can reach Lendmire at 828-256-2183 or request a quote to compare how a given business type and deposit history sizes up across programs.
For current guidelines and terms, see Lendmire’s super jumbo bank statement loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 40 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. VMC Asset Depositor LLC — SEC Form ABS-15G
2. CFPB — Ability-to-Repay/Qualified Mortgage Rule
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.
