A Profit and Loss (P&L) mortgage loan is a type of non-qualified mortgage (non-QM) for self-employed borrowers whose tax returns understate what their business really earns. Instead of using the net income on your tax returns, the program qualifies you based on the net profit shown on a profit and loss statement prepared by a licensed tax professional, backed by a few recent business bank statements.

Here are the Key Features of Profit and Loss (P&L) Mortgage Loans

• Income Verification through a Professionally Prepared Statement: Qualify using a 12- or 24-month profit and loss statement prepared and signed by an independent licensed tax professional, such as a CPA or IRS enrolled agent (EA). Tax returns and IRS transcript requests are generally not required.


• How Qualifying Income Is Calculated: Monthly income is based on the net profit on the statement (revenue minus business expenses), multiplied by your ownership percentage and divided by 12 or 24 months. Non-cash expenses such as depreciation and amortization, and wages the business paid you, can typically be added back.


• Supporting Bank Statements: 2 to 3 recent months of business bank statements are usually requested to confirm that deposits reasonably support the revenue on the statement (commonly at least 75% of average monthly revenue).


• Target Audience: Established business owners, service providers, consultants and entrepreneurs whose tax returns understate earnings because of write-offs, or whose bank deposits are too complex or mixed for a bank statement loan.


• Business History & Ownership: Generally requires at least 2 years of business operations and at least 25% ownership of the business.


• Down Payment: Typically 15% to 20% or more (loan-to-value up to 80%-85% for purchases and rate-and-term refinances).


• Credit Score Requirements: Minimum credit scores typically start between 620 and 640. Higher scores, generally 700 and above, may allow larger loan amounts and more favorable pricing.


• Debt-to-Income Ratio (DTI): Maximum DTI is typically between 45% and 50%.


• Cash Reserves: Typically 3 to 12 months of mortgage payments in liquid funds after closing.


• Property Types: Primary residences and second homes; some programs also allow investment properties.

Profit and Loss (P&L) Loan vs. Bank Statement Loan vs. Conventional Mortgage

Pros of Profit and Loss (P&L) Mortgage Loans

• Qualify on True Business Profit: Uses the net income from your actual books, not tax returns reduced by write-offs.


• Less Paperwork: One professionally prepared statement plus 2-3 months of bank statements replaces 12-24 months of bank statement review.


• Handles Complex Deposits: Works well for seasonal income, client retainers, multiple revenue streams or mixed accounts.


• No Tax Returns or Transcripts: Keeps your tax filings private and avoids the impact of paper losses.

Cons of Profit and Loss (P&L) Mortgage Loans

• Independent Preparer Required: Statements prepared by you or an in-house bookkeeper are generally not accepted.


• Higher Interest Rates: Because these are non-QM loans, rates are typically higher than conventional mortgages.


• Deposit Check: Recent bank statements must support a large share (commonly at least 75%) of the monthly revenue on your statement.

Profit and Loss (P&L) loans are a strong fit for business owners with well-kept books whose tax returns don't show their true profit. If you're paid as a contractor or prefer to qualify on deposits, also compare 1099 Mortgage Loans and Bank Statement Loans.