Business owners often run into the same frustrating mortgage problem.
The business may be doing well, revenue may be strong and there may be plenty of money coming in. But after legitimate business expenses and tax deductions, the income reported on the owner’s tax returns may be much lower than expected.
That can make qualifying for a conventional mortgage more difficult.
Here’s the good news: Depending on your situation, your tax returns may not be the only way to document your income.
What Is a Profit and Loss Statement Mortgage?
A profit and loss statement mortgage is a type of Non-QM loan designed primarily for self-employed borrowers.
Instead of qualifying solely from personal and business tax returns, the lender may review a profit and loss statement showing the business’s revenue, expenses and net income.
These programs are sometimes called:
- P&L loans
- Profit and loss statement loans
- CPA-prepared P&L loans
- Self-employed mortgages without traditional tax-return documentation
The P&L usually needs to cover a specific period and may need to be prepared or verified by a CPA, tax preparer, accountant or other qualified third party.
How Does a Mortgage Lender Review the P&L?
The lender does not simply look at your gross business revenue and call all of it income.
For example, a business generating $300,000 per year does not automatically give the borrower $300,000 of qualifying income. The lender must consider the business’s expenses and determine the eligible net income under that program’s guidelines.
The lender may also review:
- How long you have been self-employed
- Your ownership percentage
- The stability of the business
- Your credit history
- Your assets and reserves
- Recent business bank statements
- The property type and occupancy
- The requested loan amount
Some programs may use the Profit & Loss statement by itself. Others could require supporting bank statements or additional business documentation.
Do P&L Loans Require Tax Returns?
Certain P&L loan programs may not require personal or business tax returns for income qualification.
That does not mean the loan requires no documentation.
You may still need to provide items such as a business license, CPA letter, profit and loss statement, bank statements, asset statements and documentation showing how long the business has operated.
A P&L loan is not a “no-documentation” mortgage. It is an alternative-documentation mortgage.
That distinction is important.
How Much Down Payment Does a P&L Loan Require?
Profit and loss statement mortgages commonly require a larger down payment than many conventional or government-backed mortgages.
Depending on the lender, credit score, property and documentation, a qualified borrower may need approximately 20% to 30% down. Some programs may allow higher leverage, while others require additional equity.
Interest rates and closing costs may also be higher than conventional financing because these are generally Non-QM loans.
That does not automatically make the loan a bad option. The real question is whether the program helps you qualify for a suitable home without forcing your business finances into conventional underwriting guidelines that may not accurately reflect your current cash flow.
Should Every Business Owner Use a P&L Loan?
No.
Business owners should not automatically avoid conventional mortgages. If your tax returns support the needed income, conventional financing could offer better pricing or a smaller down payment.
A P&L loan may be worth exploring when:
- Tax deductions significantly reduce your qualifying income
- Your current business performance is stronger than older tax returns suggest
- You have an established, profitable business
- You can make the required down payment
- A conventional lender has declined the loan because of income documentation
The right first step is to compare your documentation options—not assume that one loan works for every business owner.
Learn more about P&L loans for self-employed borrowers or review other Non-QM mortgage options.
You can also complete the Andes Mortgage Mortgage Match to help identify which income-documentation programs may fit your situation.
Compliance Disclaimer
This content is for educational purposes only and is not financial, legal, accounting or tax advice. P&L loan guidelines, documentation requirements, down payments, interest rates, closing costs and availability vary by lender and borrower qualifications. A P&L statement must accurately represent the business’s financial activity and may require preparation or verification by an approved third party. Not all borrowers will qualify. Loan approval is subject to credit review, property eligibility, program guidelines and underwriting approval. This is not a commitment to lend. Andes Mortgage LLC, NMLS #2187991. Marcos Zambrano, NMLS #988935. Equal Housing Opportunity.