How your profit and loss statement may affect your mortgage application

If you’re self-employed you need to know that lenders are going to ask for a profit and loss statement year to date. Here’s what it is and why it’s needed if you’re self-employed and you’re trying to get a mortgage…

If you’re trying to secure home financing whether you’re buying a house or refinancing one you already own, a document that is going to be requested is a profit and loss statement which gives the mortgage lender a read into the strength and the viability of your business.

Mortgage underwriters are required to use tax returns to qualify you if you’re self-employed or if you have any controlling interest in a business. As a result of this, let’s say that your most recent tax return for example 2020 was very strong. It’s August of 2021 and your year-to-date income looks a little bit lower because all your billables come in at the end of the year.

That will paint a problem for financing because your current income does not support the most recent year based on when the billables are received. So when you’re securing financing the profit and law statement is to make sure your current business is on par with the most recent year of the income tax return which is what the lender is using to qualify you for the mortgage.

If the income is the same everything is sufficient, if the income is more everything is very strong, but it will not do anything for your loan and then if the income appears to be less than the previous income return, you’re going to have a problem which means you either need to put the mortgage project on hold until you show the income within your P and L.

This is something that pops up on self-employment loans and if it is not handled correctly, it can come back to bite you later down the line if you’re not showing the proper amount of income. So as a result, make sure you show the income that’s consistent with the most recent years of the income tax returns.

Not sure what that is because you don’t do a profit in loss? No problem reaching out to the lender that’s handling your financing most mortgage companies that are reputable typically have a profit and loss excel worksheet that you can just plug in the numbers for your own business. The P and L are something to take into consideration next time you are securing a mortgage using self-employment income.

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