As a local mortgage lender, we know how difficult it can be for self-employed homebuyers to secure traditional financing. However, there is a solution to this problem that is slowly gaining traction in the market. Enter the P&L or Profit and Loss loan, a product tailored specifically for independent contractors or business owners who don’t have the usual documentation that traditional lenders require.
So, what exactly is a P&L loan? Essentially, this is a mortgage product that uses a Profit and Loss statement from a certified public accountant (CPA) to determine a borrower’s qualifying income. This statement is then evaluated in lieu of tax returns and pay stubs that more traditional loans require. It is worth noting that the CPA who prepares the P&L statement must be the same CPA who completed the most recent tax filing.
This type of mortgage loan comes with its own set of qualifications for applicants. For example, 12-month P&L compiled and signed by a CPA, representing total business sales and expenses for the covered period, must be provided along with the loan application. Moreover, the CPA must attest to the fact that they prepared the borrower’s most recent tax returns and provide the borrower’s percentage of ownership of the business.
For bottom-line net income (profit) calculation, reasonable expenses for the industry of work must be documented. After deductions, the borrower’s available income is divided by 12 to arrive at monthly income. This monthly figure represents the eligible income to qualify for the loan. It is crucial to note that a minimum of 50% business ownership is required by the applicant or borrower.
For example, if a self-employed borrower has a net income of $300,000 for the year, they could qualify for a monthly mortgage payment of $25,000 in the first year of payments. This calculation is based on a 12-month P&L stating a net profit of $300,000, with 50% ownership of the applicant or borrower. This scenario assumes all other qualifications of the loan product have been met.
Here at Blink Lending, we understand the challenges that self-employed borrowers face when it comes to traditional financing. That’s why we are proud to offer alternative financing options like P&L loans to help you achieve your dream of homeownership. If you’re interested in learning more, or if you’re ready to apply today, visit blinklending.com.
