Profit & Loss (P&L) Only Loans

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.

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What Is a Profit & Loss-Only Loan?

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:

  • Tax returns
  • W-2 forms
  • Pay stubs

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.

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How Do P&L-Only Loans Work?

Instead of verifying income from tax documents, lenders will evaluate the following:

  • Year-to-date P&L statements
  • Business cash flow
  • Credit score
  • Debt-to-income (DTI) ratio
  • Bank statements

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.

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Who Are P&L-Only Loans Best For?

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:

  • Small business owners
  • Freelancers and consultants
  • Independent contractors
  • Gig economy workers
  • Real estate agents
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What Are the Requirements for a P&L-Only Loan?

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.

Pros and Cons of P&L-Only Loans

Before applying for a P&L-only loan, consider the pros and cons.

Pros:

  • No Tax Returns Needed: Ideal for borrowers with substantial business expense deductions.
  • Flexible Income Documentation: Enables self-employed borrowers to show their actual earnings more accurately.
  • Faster Application Process: A profit and loss statement can streamline the process and lead to faster loan decisions.

Cons:

  • Higher Interest Rates: Interest rates for P&L-only loans are often slightly higher than those for traditional mortgages due to increased risk for the lender.
  • Limited Lender Availability: Not all mortgage lenders offer P&L-only loans. Only certain mortgage companies, like Sammamish Mortgage, offer these specialty programs.
  • Strict Documentation Standards: Lenders typically require CPA-verified profit and loss statements. Any discrepancies with bank deposits can be a red flag.
  • Larger Down Payment: Borrowers may need to put more money down to secure the mortgage.

P&L Only Loans vs. Bank Statement Loans

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

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FAQs

Who qualifies for a P&L-only loan?

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.

What types of properties can I buy with 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.

Where are P&L-only loans available?

P&L-only loans are available from mortgage companies, like Sammamish Mortgage, that are experienced with these unique loan programs.

What documents are required for a P&L-only loan for business owners?

Documents typically required include a P&L statement, letter from a CPA, and sometimes bank statements.

Do I need a high credit score to qualify?

A minimum credit score of 620 is generally required, though a higher score can increase the odds of approval.

Are interest rates higher for P&L-only loans?

Yes, rates tend to be higher for these loans compared to standard mortgages because of the added risk for the lender.

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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 mortgage programs for those without traditional employment documentation in WA, OR, ID, CO, and CA. Visit our website to get an instant rate quote or call us today to have your mortgage questions answered!

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