Being a business owner has its perks—flexibility, control, freedom to pursue your passion and in most cases, better money than being employed by someone else.
But when it comes to qualifying for a mortgage, self-employment can present unique challenges. Most mortgage programs prioritize steady paychecks and W-2 forms, leaving many self-employed borrowers feeling excluded.
Fortunately, Profit & Loss (P&L) statement mortgage loans offer a solution. These loans provide a path to homeownership for self-employed individuals who make enough money to qualify for a home, but may not report enough income on taxes for most typical mortgage loans.
In this guide, I will tell you everything you need to know about P&L loans, including how they work, advantages, disadvantages and other items you need to be aware of.
What are P&L Loans?
P&L loans are designed for self-employed borrowers who may not have traditional proof of income, like pay stubs or W-2 forms or simply, they don’t report sufficient “net income” on their tax returns. Instead, lenders use a P&L statement—a financial document summarizing your income and expenses—to assess your ability to repay the loan.
In order to qualify, borrowers must be self-employed or 1099 contractors. You will not be able to qualify if you are a salaried employee working for a company and qualify for a P&L loan.
With a P&L, lenders can determine the financial performance of your business and that way, be able to qualify you for a mortgage loan.
What is a profit and loss statement (P&L)?
A Profit and Loss (P&L) statement, also known as an income statement, is a financial document that summarizes the revenues, costs, and expenses incurred during a specific period, typically a fiscal quarter or year.
The main components of a P&L statement are:
Revenue: Total income earned from business operations.
Expenses: Costs associated with running the business, such as salaries, rent, and utilities.
Net Income: The profit remaining after all expenses are deducted from revenue.
When it comes to qualifying or a P&L loan, mortgage lenders who offer this program may request for a 12 month P&L or a P&L covering the most recent 2 year period.
By the way, in order to qualify for a P&L Loan, a professional accountant or licensed taxed preparer must prepare your P&L statement.
How to qualify for a mortgage with a P&L statement
Let’s break down the main things that will qualify you for a P&L Loan.
Verification: Lenders will require your P&L to be prepared or signed by a certified public accountant (CPA) or a licensed tax preparer. Depending on your lender, you may be asked to provide either a 12 month P&L or for a P&L statement covering the most recent 2 years.
CPA Letter: Your CPA or Tax Preparer will need to provide a letter verifying how long your business has been in existence, your ownership percentage and that they have prepared your P&L statement.
Credit Scores: A strong credit score is not required but it’s definitely recommended. The minimum credit score to qualify for a P&L Loan is 640 but it will require you to put more money down and you will have a higher interest rate. We recommend our clients who look for a P&L Loan to be at least at a 700 FICO.
Down Payment: The P&L Loan program requires a minimum 20% down payment and for some lenders, even 25% may be the minimum. At Andes Mortgage, we offer P&L loans with a minimum 20% down.
Reserves: The P&L loan program requires 6 months of PITIA payments in reserves
Existing residence history: You will be asked to provide for either a mortgage history or rent history covering 12 months. This way, the lender ensures that you have been on time with your current residence.
Advantages of Buying a Home with a P&L Loan
Let’s talk about the advantages of the P&L program
No Tax Returns Required: P&L loans do not require you to show your tax returns. In fact, the P&L loan program is the closest program to a “Stated Income” loan. What does this mean? Well, the lender will just use the net income on your P&L to qualify you, and no other checks are performed.
You may qualify for more mortgage than any other program: Again, this is because lenders will base your income on what you have reported on your P&L. If your P&L has a net income of $1,000,000, the lender will use that as your qualifying income.
No prepayment penalties: If you are using a P&L loan to purchase an owner occupied home or a vacation home, you will not have a prepayment penalty.
Can title the property to an LLC: With a P&L Loan, you can put your company as the owner of the home. This is not possible with government loans such as a conventional or FHA loans.
Disadvantages of Buying a Home with a P&L Loan
No program is going to be perfect, so let us review some of the disadvantages of this loan:
Higher Interest Rates: These loans will have higher rates than conventional mortgages because they are riskier to the lender. Also, your credit score will influence the rates greatly which is why we recommend our applicants to have a credit score of at least 700.
Higher down payment required: The P&L loan program requires a minimum 20% down payment to qualify. Many lenders however, may require a minimum of 25% down. Here at Andes Mortgage, we offer P&L loans with as low as a 20% down payment.
Alternatives to P&L Loans
If a P&L statement loan isn’t the right fit, there are other alternatives for business owners which can be more beneficial.
Bank Statement Loans: Use bank deposits to prove income. Bank statement loans may also carry lower rates and lower down payment requirements
Asset-Based Loans: Qualify based on savings, investments, or other assets.
DSCR Loans: If you are buying an investment property, DSCR loans do not require income to qualify
Traditional Mortgages: These may still work if your tax returns adequately reflect your income.
The bottom line
Profit & Loss statement mortgage loans are an excellent solution for self-employed borrowers seeking flexible home financing options. By preparing a strong P&L statement and working with experienced professionals, you can overcome common challenges and achieve your homeownership goals.
At Andes Mortgage, we specialize in helping self-employed borrowers navigate the mortgage process. Contact us today for personalized guidance and support in securing the loan that’s right for you.
Ready to take the next step? Visit www.andesmortgage.com/apply to get started.
