CPA Letters for Mortgages: What They Are For and What They Can Say

A CPA letter is a short, signed statement from your CPA, enrolled agent or tax preparer that confirms specific facts a lender needs about you or your business. Lenders use it to verify self-employment, your ownership share, how long the business has operated, or, on bank statement loans, the share of business deposits that goes to expenses. It can confirm what the preparer knows from their own work, but it cannot vouch for your ability to repay or promise anything about future income.

Common jobs a CPA letter does

Lenders ask for these letters for a handful of reasons:

• Verifying self-employment. Confirming that you own the business and that it is active.
• Ownership share. Showing what portion of the business you own, which affects how much of its income the lender can count.
• Length of business. Confirming how long you have been self-employed and how long the preparer has worked with you.
• Expense letters on bank statement loans. Stating the business's expense ratio so the lender can estimate net income from deposits.
• Use of business funds. Confirming that using business money for your down payment or closing costs should not harm the business's operations.
• Tax return preparation. Confirming that the preparer filed your most recent personal or business returns.

Each lender and program has its own wording requirements. Some provide a template. Others accept a letter on the preparer's letterhead as long as it covers the required points.

Not every file needs a letter. Whether you need one depends on the documentation method, how your business is structured and what the rest of your file already shows. A borrower using full tax returns on a conventional loan may never be asked for one, while a borrower on a bank statement program may need it to confirm ownership and expenses. Ask the loan officer early so the request does not surprise you, or your preparer, late in the process.

The expense letter, explained

Bank statement programs commonly review 12 or 24 months of personal or business statements. Business deposits are not all profit, so the lender needs a way to separate revenue from costs. There are two common methods: an expense factor is applied to business deposits, or a CPA- or tax-preparer-prepared expense letter is used to state your business's actual expense ratio.

If your business runs leaner than the program's standard factor assumes, an expense letter may let more of your deposits count as income. If your expenses run higher, the letter may not help, and the lender will generally rely on the figure it can support. Either way, the letter has to reflect what the preparer actually knows from your books or your returns. A ratio that does not line up with your tax filings or statements will draw questions.

What a CPA letter can say

A sound letter sticks to facts the preparer can support from their own work. That usually includes:

• The preparer's name, credential, firm and contact information.
• Your name and your business's legal name.
• Your ownership share in the business.
• How long the business has operated and how long the preparer has worked with you.
• Which tax returns the preparer filed for you or the business.
• An expense ratio based on the records they reviewed, when the program allows one.
• A date and signature.

Short and factual is better than long and vague. Underwriters read these letters closely, and every extra sentence is something else to verify.

What a CPA letter cannot say

Professional standards and common sense limit what a preparer should put in writing. Most CPAs and enrolled agents will not:

• State that you can afford the mortgage or will be able to repay it.
• Predict your future income or promise the business will stay profitable.
• Confirm facts they have not reviewed, such as income from accounts they never saw.
• Sign a letter drafted by a loan officer if the wording goes beyond what they know.

Some lenders push back on heavy disclaimers, while many preparers insist on some limiting language. Sorting out the wording before the letter is signed saves time. If your preparer cannot sign what one program asks for, another program may accept what they can provide.

The preparer's role, and why independence matters

Under the CFPB's Ability-to-Repay rule, lenders must make a reasonable, good-faith determination that you can repay, and they must verify the income or assets they rely on with reasonably reliable third-party records. Those records can include documents prepared or reviewed by someone other than you, the lender or the mortgage broker. That is why the letter has to come from an independent professional and not from you or your loan officer.

The IRS distinguishes credentialed preparers from others. CPAs are licensed by state boards of accountancy, and enrolled agents are licensed by the IRS. Other paid preparers have a PTIN but may not hold a professional credential. Programs differ on which of these they accept, so ask before your preparer writes anything.

Lenders may also verify the letter itself. They can look up the preparer's license, call the firm, or compare the letter with your tax transcripts and bank statements.

CPA letter versus a P&L statement

People often confuse the two. A CPA letter is a short confirmation of specific facts: that you own the business, how long it has operated, which returns the preparer filed, or an expense ratio. A profit-and-loss statement is a financial report showing revenue, expenses and net profit for a set period. On a P&L program, the statement itself becomes the main income document. On a bank statement program, your deposits are the income source and the letter helps the lender read them. Some files need both, so ask the loan officer which documents your program requires before your preparer starts on either one.

Red flags to avoid

• A letter from someone who has not actually prepared your returns or reviewed your books.
• Anyone offering to supply a letter for you.
• An expense ratio that does not match your returns or statements.
• Any change to a letter after the preparer has signed it.

Misstating information on a loan application is serious and can carry legal consequences. If anyone suggests a shortcut, walk away.

How to ask your preparer for a letter

Get the program's exact requirements in writing from the loan officer first. Send them to your preparer with enough lead time, and ask plainly what they can and cannot confirm. Expect a fee for the preparer's time. If your preparer will not sign certain language, tell the loan officer early so they can look for a program that fits what your preparer can provide. Programs vary by borrower, property and investor, and every loan is subject to credit approval. Questions about how your expenses or deductions affect your taxes are a separate matter, so talk to a tax professional.

Frequently asked questions

Next steps

• P&L Loans
• Bank Statement Loans
• P&L Loans in Florida
• P&L Loans in New York
• P&L Loans in New Jersey
• P&L Loans in Pennsylvania
• P&L Loans in Connecticut
• P&L Loans in Virginia

Sources

• IRS: Understanding tax return preparer credentials and qualifications
• IRS: Enrolled agents
• CFPB: Regulation Z, 12 CFR 1026.43, minimum standards for transactions secured by a dwelling
• CFPB: What is the ability-to-repay rule?
• IRS: Self-employed individuals tax center