Maximizing Bank Statement Loan Income: The CPA Letter and the Expense Factor

For self-employed homebuyers in Colorado, the Bank Statement Loan is often the most logical path to a mortgage. Instead of relying on tax returns where heavy deductions can shrink your taxable incomele, nders evaluate your actual cash flow via 12 or 24 months of business deposits. However, there is a critical detail that many borrowers overlook: the Expense Factor.

What is the Expense Factor?

Lenders understand that running a business isn’t free. To account for operating costs, Bank Statement programs apply an “expense factor” to your total deposits. Many lenders use a “default” factor, often as high as 50%. This means if your business deposits $20,000 a month, the lender may only credit you with $10,000 in qualifying income.

While a 50% factor might be accurate for a retail store with high inventory costs, it can be a major hurdle for service-based professionals in Centennial, Parker, or Highlands Ranch. For consultants, lawyers, or tech freelancers, actual overhead might only be 10% or 15%.

The Power of the CPA Letter

The most effective way to challenge a high default expense factor is with a CPA Letter. Most Bank Statement lenders will allow for a significantly lower expense factor if your CPA provides a signed letter stating your business’s actual expense ratio.

For example, if your CPA certifies that your expense factor is 20%, that same $20,000 in monthly deposits suddenly provides $16,000 in qualifying income instead of $10,000. This increase in buying power is often the difference between qualifying for a mid-range home and your dream home in the Denver metro area.

Why the Strategy Matters

As highlighted by Fannie Mae’s resources for self-employed income analysis, the goal is always to determine the stability and “true” liquidity of a business. By using a CPA letter to customize your expense factor, you are providing a more accurate picture of your financial strength than a generic industry average ever could.

This approach is particularly effective for:

• Independent consultants and freelancers.
• Real estate professionals and architects.
• Software developers and digital marketers.

Expert Guidance for Colorado Business Owners

Every lender has slightly different requirements for what that CPA letter must say. Some require a two-year history, while others may ask for a corresponding Profit and Loss statement. Navigating these nuances requires a loan officer who specializes in the “Non-QM” market and understands how to present your business in the best light to an underwriter.

Whether you are looking in Lone Tree, Castle Rock, or Aurora, don’t let a “standard” calculation limit your options. Let’s look at your bank statements together and see how we can maximize your qualifying income.

You can reach out to me directly at rbaxter@choicemortgage.com or call (303) 670-0137 to discuss your specific scenario.

For more insights on self-employed mortgage strategies and Colorado real estate, visit our blog page.