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What the Letter Needs to Say
The CPA expense ratio letter must include these specific elements to be accepted by underwriting:
1. Identity of the preparer
Full name, professional title (CPA, EA, etc.), license or credential number, firm name, address, and contact information. The preparer must be verifiably licensed.
2. Business identification
The legal name of the business entity and EIN (or DBA and description if sole proprietorship).
3. The bank statement period covered
The letter should specifically reference the same time period as your bank statements â “for the 24-month period ending [month/year]” or “based on review of business records for [year] and [year].”
4. The certified expense ratio
A specific percentage: “Based on my review of [Business Name]’s financial records, the business’s operating expense ratio for the applicable period is [X]%.” The minimum certifiable ratio is 10%.
5. Confirmation that returns have been filed or prepared
“I have prepared/filed the most recent federal business income tax return for [Business Name].” This confirms the preparer has complete knowledge of the business’s financial picture.
6. CPA signature and date
Wet or electronic signature. Dated within 120 days of application typically.
How to Ask Your Accountant
Most CPAs who work with self-employed clients are familiar with this request â it’s common in Non-QM mortgage contexts. Here is the exact request to send your accountant:
“Hi [Name],
I’m applying for a bank statement mortgage and the lender needs an expense ratio letter from you. It needs to certify my business’s actual operating expense ratio as a percentage of gross revenue for the past [12 or 24] months.
The letter should include:
– Your credentials and license number
– My business name and the period covered
– The certified expense ratio percentage
– Confirmation that you have filed/prepared my most recent business tax return
– Your signature and date
The minimum ratio the lender will accept is 10%. Please let me know if you need any additional information to prepare this letter.
Thank you.”
This exact framing gets you a compliant letter in most cases. Your CPA will know how to structure it from this request.
What Expense Ratio to Expect for Your Industry
These are typical CPA-certified expense ratios by profession. Your actual ratio may vary based on your specific business structure, overhead, and deductions:
| Profession | Typical Actual Expense Ratio |
|---|---|
| Management / IT consultant | 15â25% |
| Real estate agent | 25â40% |
| Freelancer / designer / writer | 10â25% |
| Attorney (private practice) | 35â50% |
| Physician (private practice) | 35â55% |
| Dentist / dental practice | 45â65% |
| General contractor | 55â75% |
| Restaurant / food service | 65â80% |
| Amazon FBA / e-commerce | 50â75% |
| Entertainment professional (loan-out) | 15â30% |
What It Actually Costs â and What It Saves
CPA expense letters typically cost $200 to $500 depending on the accountant and complexity. Some CPAs include them at no charge if you’re a longstanding client.
The value calculation:
Example: Management consultant with $400,000 in annual gross business deposits.
– Standard 50% ratio: $200,000 qualifying income / $16,667/month
– CPA letter at 20% ratio: $320,000 qualifying income / $26,667/month
– Difference: $10,000/month more qualifying income
– At 43% DTI: approximately $2,000â$2,500/month more in payment capacity
– At current rates: approximately $250,000â$300,000 more in loan amount
A $300 letter that produces $300,000 more in purchasing power. The math is not complicated.
When the CPA Letter Isn’t Worth It
If your actual expense ratio is close to 50%, the letter doesn’t produce meaningful income improvement. For restaurant owners, contractors, and other high-expense businesses where actual costs run 65â80% of revenue, the CPA letter actually produces lower qualifying income than the standard 50% â because it certifies a higher expense rate than the fixed default.
Before requesting the letter, ask your accountant to estimate your actual expense ratio. If it’s above 50%, stick with the fixed ratio. If it’s below 40%, the letter is almost always worth it.
Frequently Asked Questions
Who can write the CPA expense letter?
A CPA, enrolled agent (EA), tax attorney, or CTEC-certified tax preparer. The preparer must have filed or prepared your most recent business tax return.
What is the minimum expense ratio a CPA can certify?
10%. Even businesses with essentially no overhead use 10% as the floor.
Can I write my own expense ratio letter?
No. Self-certification is not accepted. The letter must come from a credentialed third party who has filed your tax returns.
Does the letter need to be notarized?
Not typically. A signed letter on company letterhead from a licensed preparer is sufficient in most cases.
What if my CPA doesn’t know what this is?
Share the request language from this article directly. The concept is straightforward. If your CPA is unfamiliar, it is entirely possible they have not encountered Non-QM mortgage certification before â but the request is simple once explained.
How current does the letter need to be?
The letter should be dated within 120 days of your loan application and reference the same period as your bank statements.
Go Deeper
About the Author
Mayer Dallal is the Managing Director of Mbanc (Mortgage Bank of California, NMLS #38232), a consumer-direct Non-QM lender specializing in bank statement loans, DSCR loans, and asset utilization programs for self-employed borrowers and real estate investors. Mbanc is licensed in 22 states for primary residence lending plus an additional 24 states and Washington DC for non-owner-occupied investment property financing under the business-purpose exemption.
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Mbanc NMLS #38232 | Equal Housing Opportunity Lender
| Mortgage Bank of California
