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Why Do Mortgage Lenders Ask Borrowers For a CPA Letter
What do mortgage underwriters ask for CPA letters from self-employed borrowers?
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This discussion was modified 9 months, 1 week ago by
Gustan.
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This discussion was modified 9 months, 1 week ago by
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28 Replies
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The main reason borrowers are asked for a letter from a CPA or accountant is to verify that the borrower is truly self-employed. Anyone can create tax returns. Most letters from the CPA/tax preparer just need to simply state that they have reviewed the tax returns for the past 2 years and confirm that the borrower is indeed self-employed. The lender needs to do their due diligence to cover themselves when it comes to the self-employed borrowers. Having the CPA letter would help the lender shift the responsibility of non repayment to the CPA who verified the self-employment for the borrower. Hope this helps.
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Hi Susan,
All business’ operate at a cost of the total income. This is known as the expense factor. Whether the expenses are labor, rent, materials or all of the above; business always have a cost. There is usually a standard percentage used by the lender if no CPA letter is submitted (40%-60% in my experience, depending on biz type). But not all business cost 50% of their income to operate.
In that case, a borrower can use a CPA letter to lower the expense factor. This will allow the borrower to use a larger percentage of their self employed income and give them more purchasing power.
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What if I get my taxes done from HR Block. Does the accounting CPA need to be an actual CPA?
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I am assuming H&R Block does have a CPA on staff for this exact scenario. I would assume this would be an extra fee. Personally, if an SBO is using H&R Block for their taxes, they should look elsewhere for their tax needs. Just my opinion.
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A self-employment verification letter from a CPA confirms that the CPA has prepared or reviewed the applicant’s tax return and acknowledges their self-employment status. It’s often needed by third parties to verify income for the approval to rent or purchase real estate properties.
Most lenders require the CPA to be licensed. There is an IRS directory to find and confirm the licensing and certification of a CPA.
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What if the borrower does their own taxes. How can they get a CPA Letter
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You would need to contact a third party tax service and ask them for a CPA letter. In my opinion, having a CPA that you work with quarterly or annually is the best way forward.
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CPA letter isnt always required but is undoubtedly a sure fire solution to clear the requirement. Other items can be provided, ie. Operating Agreement, Articles of Incorporation, etc. Verifying a borrower’s ownership % in their business is also a requirement and often times it has to be assumed with these documents – this is why letter from CPA or tax preparer is the preferred method.
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From my understanding if you did your own taxes you can still get a CPA to do a CPA Letter
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You don’t have to have a CPA for the CPA Letter.
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Self-employed borrowers are required by mortgage lenders to get a CPA letter. Many self-employed borrowers do their income taxes themselves and do not have a CPA. No need to be alarmed. The team at GCA Mortgage Group often refer self-employed borrowers who do not have an accountant or CPA to our preferred business development partner Aldiva, Inc. Ali the president of Aldiva, Inc. does CPA letters as well as income taxes, setting up new corporations and limited liability companies, credit repair, and business credit consulting. Ali will
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Mortgage lenders often request a CPA (Certified Public Accountant) letter from borrowers as part of the loan application process to gain additional assurance about the borrower’s financial stability and credibility. This letter, provided by a licensed CPA, serves as a verification of the borrower’s financial information, particularly their income, assets, and sometimes their overall financial health.