What a P&L is

A profit and loss statement is a short report on a business. It shows the money that came in, the money that went out, and what was left. That last line is the profit. Most owners already have one, or their bookkeeper can make one from the books.

A tax return shows profit too. But the return is built to cut taxes, so it may show far less than the owner really takes home. A P&L can paint a clearer picture of how the business is doing right now.

Why standard loans want tax returns

Federal rules say a lender must make a good-faith effort to confirm a buyer can repay the loan. For most standard loans, the proof for a business owner is the last one or two years of tax returns. The lender then works out a monthly income from those returns.

That system works well for many people. It is hard on owners who write off a lot, who had one slow year, or whose business grew fast this year. Their returns may not match the money they can truly afford to spend on a home.

Where P&L loans fit

A loan that uses a P&L in place of tax returns is a non-QM loan. That means it falls outside the federal rules for a “qualified mortgage,” so each lender writes its own rules. Programs differ a lot from one lender to the next. Still, many of them share a few traits.

  • A time span. The P&L often covers the last 12 or 24 months.
  • A tax pro’s name on it. Many programs want the P&L made or signed by a CPA, an enrolled agent, or a paid tax preparer.
  • Some bank proof. Some lenders also ask for a few months of business bank statements to back up the numbers.
  • Proof the business is real. This could be a business license, a state filing, or a letter from the tax pro.
  • More cash. These loans often call for a larger down payment and more savings left over after closing than a standard loan.

The cost to borrow is often higher, too, since the lender takes on more risk.

What the CPA or tax preparer signs

This part trips up a lot of deals, so it pays to know it up front. The tax pro is not just handing over a report. They are putting their name and license behind it.

Lenders may ask for things like these:

  • The P&L itself, signed and dated by the tax pro, and often by the owner too.
  • A short letter saying the tax pro has prepared the owner’s taxes for a set time, often two years.
  • A note on how much of the business the buyer owns.
  • The tax pro’s license number or a way to look it up.

Some lenders will call the tax pro to confirm they signed it. Some tax pros will not sign a P&L they did not build from the books. Others will only sign certain wording. Ask the buyer to check with their tax pro early, before the house hunt gets serious. A week of back and forth after the offer is accepted can strain a contract.

Who these loans often help

Middle Tennessee has many people who work for themselves. Think of a Franklin contractor, a Cool Springs salon owner, a Nashville studio owner, or a real estate agent who runs their own team. A P&L loan may suit buyers who:

  • Take big write-offs, so their returns show low profit.
  • Had a strong year that has not hit a tax return yet.
  • Had one rough year in the past that drags down a two-year average.
  • Have a tax pro who knows their books well and is willing to sign.

It is often not the best fit for a brand-new business, an owner with messy books, or a buyer with very little cash saved.

Tips for agents to keep the deal moving

  • Talk to a loan officer first. Before you show homes in Brentwood or Spring Hill, have the buyer speak with a loan officer. Find out which kind of loan fits.
  • Line up the tax pro. Ask, “Will your CPA sign a P&L for a mortgage?” A fast yes saves days.
  • Build in time. Non-QM files can take a bit longer. Set the loan and closing dates with some room.
  • Keep the books clean. Remind the buyer not to mix home and business money, and not to move large sums without a paper trail.
  • Plan for cash. Make sure the buyer knows the down payment may be bigger than a standard loan would ask.

Other paths to compare

A P&L loan is one tool among several. Some business owners do better with a bank statement loan, which looks at deposits. Some can use savings to qualify. Others can qualify for a standard loan once a new tax return is filed. A broker can line these options up so the buyer sees the cost and the paperwork for each.

Common questions

Can a buyer get a mortgage with only a P&L and no tax returns?

Some non-QM programs allow it. They often want the P&L made or signed by a CPA, enrolled agent, or tax preparer, and some also ask for bank statements. Rules vary by lender.

Can the buyer write their own P&L?

For a P&L-only loan, usually not. Many lenders want a licensed or paid tax pro to prepare or sign it. A P&L the owner made alone may still help as extra proof on other loan types.

Is a P&L loan more costly than a standard loan?

Often, yes. Because these loans carry more risk for the lender, the cost to borrow and the down payment are often higher. Comparing a few options helps the buyer see the trade-off.

Have a self-employed buyer?

Reach out through our contact page and we will connect you with a Heathrow Mortgage loan originator. You can also start an application online.

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