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P and L CPA Letter For Non-QM Loans For Self-Employment Borrowers
If a mortgage broker is asking for a CPA letter on a non-QM loan for a self-employed borrower on a P and L non-QM loan, what does this mean? What if my accountant is not a Certified Public Accountant but is a professional tax preparer and does tax preparation for me individually and my businesses. Do you need need to be a CPA to do a CPA letter for a mortgage lender on a P and L non-QM loan for self-employed borrower?
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2 Replies
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A CPA (Certified Public Accountant) letter for a P&L (Profit and Loss) statement is a document requested by mortgage lenders when a borrower is self-employed or has income from a business. This letter serves as third-party verification of the borrower’s business income and financial standing.
The CPA letter typically includes the following:
- Confirmation that the CPA prepared or reviewed the borrower’s P&L statement and business tax returns for a specified period, usually the most recent 1-2 years.
- Verification of the net business income reported on the P&L statement and tax returns.
- An opinion from the CPA stating that the income information provided is accurate and complies with generally accepted accounting principles (GAAP).
- Details about the nature of the borrower’s business, such as the legal structure (sole proprietorship, partnership, or corporation), and the number of years in operation.
- Any relevant notes or explanations regarding significant changes in income, unusual expenses, or other factors that may affect the borrower’s financial profile.
Lenders request a CPA letter for several reasons:
- Income Verification: Self-employed borrowers often have complex income sources, and a CPA letter provides independent verification of their reported income.
- Credibility: A letter from a licensed CPA adds credibility and reliability to the financial information provided by the borrower.
- Risk Mitigation: Lenders use the CPA letter as a tool to mitigate the risk of income misrepresentation or fraud, which can be more prevalent with self-employed borrowers.
- Documentation Requirements: Many mortgage programs, such as those backed by Fannie Mae or Freddie Mac, require a CPA letter as part of the documentation for self-employed borrowers.
The CPA letter is a crucial document that helps lenders accurately assess the borrower’s ability to repay the mortgage loan based on their business income. Providing this letter can increase the chances of loan approval and ensure a smoother mortgage process for self-employed borrowers or those with business income. Most mortgage lenders do not require an actual Certified Public Accountant to write a CPA letter. As long as the tax preparer has a tax preparer number from the internal revenue service the tax preparer can do the CPA letter for a P and L statement non-QM loan.
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A registered accountant who has a tax preparer number with the Internal Revenue Service can preparer a CPA LETTER to Mortgage Companies on P and L statement loans and bank statement loans for self employed borrowers