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Securing a mortgage can be a challenge for self-employed individuals. Traditional lending often depends on tax returns and W-2 forms to verify income, which many self-employed individuals may not have or may not show the income needed for qualifying. Profit & Loss (P&L) Only Loans are specialized mortgage options that can provide self-employed borrowers with a unique path to homeownership.
This article will explain what P&L-only loans are, who they benefit, and what borrowers can expect throughout the application process.
A profit & loss-only loan is designed for self-employed individuals and enables them to qualify for a mortgage by using a P&L statement as their proof of income. Unlike conventional mortgage loan programs, this approach eliminates the necessity for:
With a profit-and-loss-only loan, lenders evaluate a borrower’s income by assessing net profits declared by their business over a certain period, using year-to-date figures or information from the last 12 months.
P&L-only loans are well-suited for self-employed professionals who earn a sufficient and stable income that may not be accurately reflected in their tax returns due to deductions, write-offs, or income fluctuations. Examples of candidates for this loan type include:
Instead of verifying income from tax documents, lenders will evaluate the following:
Based on the information from these documents, the lender will focus on net income, making P&L-only loans especially useful for self-employed borrowers.
| P&L-Only Loans: Real-World Example Emma is a freelance web designer who earns $130,000 per year. However, she only shows $75,000 in taxable income as a result of write-offs and deductions. When she applies for a mortgage, she submits a P&L statement showing $130,000 gross income and $55,000 in expenses. She also accompanies her application with a CPA letter attesting to the accuracy of the P&L. Based on a net income of $130,000, she qualifies for the home she puts an offer on with no need to adjust how her income is reported. |
While loan criteria may vary, common requirements are as follows:
| Credit Score | A minimum score of 620 is typically required. |
| Down Payment | A minimum of 10% is generally required. |
| Employment History | At least 2 years of self-employment in the same industry is required. |
| P&L Statement | Must be prepared by a tax professional. |
| CPA Letter | Required to verify the P&L’s accuracy. |
| Debt-to-Income Ratio | DTI ratios cannot exceed 45%–50%. |
| Cash Reserves | 3–12 months of reserves may be needed, depending on the loan size. |
While both P&L-only loans and bank statement loans are designed with self-employed buyers in mind, they differ in some ways:
| Feature | P&L-Only Loans | Bank Statement Loans |
| Documentation | Profit & loss statement | 12–24 months of bank statements |
| Income Assessment | Based on net income from P&L | Based on average monthly bank deposits |
| CPA Letter Required? | Yes | No |
Before applying for a P&L-only loan, consider the pros and cons.
Generally, self-employed individuals or small business owners with at least two years in business and consistent income can qualify for a P&L-only loan.
P&L loans can be used to purchase various properties, including primary homes, second properties, and investment real estate. Properties can be located anywhere, including in Seattle, Portland, San Francisco, Denver, Boise, or elsewhere in the Pacific Northwest and beyond.
P&L-only loans are available from mortgage companies, like Sammamish Mortgage, that are experienced with these unique loan programs.
Documents typically required include a P&L statement, letter from a CPA, and sometimes bank statements.
A minimum credit score of 620 is generally required, though a higher score can increase the odds of approval.
Yes, rates tend to be higher for these loans compared to standard mortgages because of the added risk for the lender.
If you’re looking to buy a home as a self-employed individual in the Pacific Northwest region, we can help. At Sammamish Mortgage, we offer various self-employed mortgage options for those without traditional employment documentation in WA, OR, ID, CO, and CA. Visit our website to get an instant rate quote, or get in touch with us today to have your mortgage questions answered!
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.