Your tax returns show $68,000 in income because your accountant (correctly) helped you maximize deductions. Your actual business revenue is closer to $180,000. You can afford the mortgage payment easily. But the lender keeps asking for more documentation.
If you're self-employed and applying for a mortgage, you've probably discovered that traditional income verification doesn't work for you. No W-2s, no employer verification letters, no straightforward path to approval. This is where a CPA letter becomes valuable, and in some cases, absolutely necessary.
Let's cut through the confusion and explain exactly what a CPA letter is, when you need one, what it should include, and how to get one without overpaying or wasting time.
What Is a CPA Letter and Why Do Lenders Want It?
A CPA letter (sometimes called a CPA comfort letter or accountant verification letter) is a formal document written by a licensed Certified Public Accountant that verifies your self-employment income, business stability, and financial situation.
Think of it as a professional endorsement of your financial reality. Your tax returns tell one story. Your bank statements tell another. Your CPA letter connects those dots and gives the lender a clearer picture of your actual earning capacity and business health.
Lenders request CPA letters because self-employed borrowers present unique challenges. Your income fluctuates. You take legitimate business deductions that reduce your taxable income but don't reflect your true earning power. You might show losses on paper while still pulling consistent cash from the business. Traditional mortgage underwriting wasn't built for this complexity.
The CPA letter solves this problem by having a licensed professional attest to:
- Your legitimate self-employment status and business operations
- The stability and viability of your business
- Your actual income and cash flow beyond what tax returns show
- Your compliance with tax filing requirements
- The sustainability of your income going forward
This third-party verification reduces the lender's risk and increases your credibility as a borrower.
When Do You Actually Need a CPA Letter?
Not every self-employed borrower needs a CPA letter. Whether you need one depends on your loan type, lender requirements, and how you're documenting income.
You'll likely need a CPA letter if:
You're applying for a conventional mortgage and showing less than two years of consistent self-employment income. Lenders want assurance that your business is stable despite the short history.
Your income has significant year-over-year fluctuations. If your income dropped 15% from last year to this year, the lender will average the two years and use the lower figure unless a CPA letter explains the variance and projects stability.
You're using bank statement loan programs. Many bank statement mortgage programs require a CPA letter to verify that you're a legitimate business owner and that the deposits in your accounts represent actual business income rather than loans, transfers, or one-time events.
You recently changed business structures. If you switched from sole proprietor to LLC or S-corp in the past two years, a CPA letter can explain the transition and confirm income continuity.
You have multiple businesses or complex income sources. When you have several income streams, a CPA letter helps the lender understand how everything fits together and which income sources are stable and continuing.
You probably don't need a CPA letter if:
You're applying for a stated income or no-doc loan where income verification isn't required (though these come with significantly higher rates).
You have clean, straightforward tax returns showing two years of consistent self-employment income with no unusual circumstances.
You're using asset depletion or other alternative qualification methods that don't rely on income verification at all.
What Should a CPA Letter Actually Include?
A proper CPA letter for mortgage purposes isn't a generic template. It needs to address specific information the underwriter is looking for.
Essential components of an effective CPA letter:
Confirmation of self-employment status and business details. The letter should state how long you've been self-employed, your business structure (sole proprietor, LLC, S-corp, etc.), and the nature of your business operations.
Income verification and trends. The CPA should state your gross business income and, more importantly, your net income or adjusted income available to service debt. They should explain whether your income is stable, increasing, or decreasing, and provide context for any fluctuations.
Business stability and outlook. Lenders want to know if your business is sustainable. The CPA should comment on the business's financial health, existing contracts or recurring revenue, and the reasonable expectation that income will continue.
Tax compliance confirmation. The letter should state that you're current on all tax filings and payments, including estimated quarterly taxes. Outstanding tax debt is a major red flag for mortgage underwriters.
Explanation of unusual items. If there are one-time events affecting your income (large equipment purchases, business investments, unusual deductions), the CPA should explain these items and clarify that they don't represent ongoing expenses.
Professional opinion on creditworthiness. While not always required, some lenders appreciate the CPA's professional opinion on your ability to handle mortgage debt given your financial situation.
Here's what an effective CPA letter excerpt looks like:
"I have served as the accountant for John Smith, owner of Smith Consulting LLC, since January 2021. Mr. Smith operates a business consulting practice focused on technology strategy for small businesses. The business has been in continuous operation since June 2020.
Based on my review of Mr. Smith's tax returns and financial records, his net business income has been as follows: 2023: $142,000; 2024: $156,000. The increase in 2024 reflects business growth and acquisition of two new long-term client contracts.
Mr. Smith is current on all federal and state tax obligations, including estimated quarterly tax payments. The business maintains a strong cash position and has no outstanding debts. Based on existing client contracts and the nature of the consulting practice, I expect income to remain stable or increase in the coming year."
Notice the specificity. Vague statements like "income appears adequate" don't help your application. Underwriters need concrete information and professional opinion backed by actual financial analysis.
How to Get a CPA Letter (and What It Costs)
Getting a CPA letter is straightforward if you already work with an accountant who knows your business. If you don't have a CPA relationship yet, you'll need to establish one.
If you have an existing CPA:
Contact them and explain that you're applying for a mortgage and need a CPA letter for income verification. Most CPAs who work with self-employed clients have written these before and know what's needed.
Provide them with:
- The specific reason for the letter (mortgage application)
- Your lender's requirements or template if they provided one
- Any specific questions or concerns the lender wants addressed
- Timeline (allow at least 1-2 weeks for preparation)
Your CPA will likely review your recent tax returns, profit and loss statements, and possibly your year-to-date financials before drafting the letter.
If you don't have a CPA:
You have two options. First, you can hire a CPA just for this letter. Look for CPAs who advertise mortgage-related services or income verification letters. Expect to pay a higher fee since they need to review your financial history from scratch without an existing relationship.
Second, consider whether you should establish an ongoing CPA relationship anyway. If your business generates significant income and you're not working with a tax professional, you're probably overpaying on taxes. The cost of hiring a CPA for ongoing tax planning often pays for itself through legitimate tax savings.
Cost expectations:
CPA letter fees vary significantly based on complexity and whether you have an existing relationship:
- Existing client, straightforward situation: $150-$400
- New client or complex business structure: $400-$800
- Urgent rush service (needed within a few days): Add $200-$300
Most CPAs charge $300-$500 for a mortgage CPA letter. If you're quoted above $800 for a standard letter, you're overpaying unless your situation is extremely complex (multiple businesses, international income, etc.).
Get the quote in writing before work begins. Some CPAs charge hourly, others charge a flat fee. Flat fee is usually better for budgeting purposes.
CPA Letters vs. Bank Statement Loans vs. Tax Return Documentation
Understanding where CPA letters fit in the broader landscape of self-employed mortgage options helps you choose the right path.
Traditional documentation with CPA letter means you're still providing tax returns, but the CPA letter explains unusual circumstances or verifies income that doesn't show clearly on those returns. This works best when your tax returns are reasonably close to your actual income capacity.
Bank statement loans examine 12-24 months of business bank deposits to calculate income. These loans typically require a CPA letter to verify that you're a legitimate business owner and that the deposits represent actual income. Bank statement loans often have slightly higher rates than conventional mortgages but can qualify you for a larger loan amount if your bank deposits significantly exceed what your tax returns show.
Asset depletion loans don't verify income at all. They look at your liquid assets and calculate a theoretical monthly income by dividing those assets by the loan term. CPA letters aren't relevant here because income documentation isn't required.
Which approach is right for you depends on how your income is documented. If your tax returns accurately reflect your income capacity, go conventional with a CPA letter if needed for clarification. If your tax returns significantly understate your income due to aggressive deductions, explore bank statement programs. If you have substantial assets but irregular income, consider asset depletion.
Common Mistakes That Waste Time and Money
Mistake 1: Getting the letter before knowing what the lender needs. Different lenders have different requirements. Some want specific language or information. Get guidance from your loan officer before having the CPA draft the letter, or you might end up paying for a revision.
Mistake 2: Using a CPA who doesn't know mortgage lending. Some CPAs write vague, unhelpful letters because they don't understand what underwriters are looking for. If your CPA hasn't written mortgage letters before, provide them with examples or ask your lender if they have a template.
Mistake 3: Not disclosing issues to your CPA. If you had an income drop, a business change, or tax filing problems, tell your CPA upfront. They can address these issues professionally in the letter. Trying to hide problems doesn't help anyone and can result in a letter that creates more questions than it answers.
Mistake 4: Waiting until the last minute. You need your CPA letter before your loan goes to underwriting. If you're 30 days from closing and just requesting the letter now, you're creating unnecessary stress. Request the letter as soon as you go under contract, or better yet, get it during pre-approval so you know exactly what you qualify for.
Mistake 5: Assuming any CPA letter is sufficient. A generic template letter that doesn't address your specific circumstances won't satisfy underwriters. The letter needs to be customized to your business and situation.
What Happens If You Can't Get a CPA Letter?
Sometimes getting a CPA letter isn't feasible. Maybe you don't have an existing CPA relationship and the cost is prohibitive. Maybe your business is so new that no CPA can reasonably attest to its stability.
If you can't get a CPA letter, or if the letter wouldn't help your situation, you have alternatives:
Non-QM loans designed for self-employed borrowers often don't require CPA letters. Bank statement programs, P&L only programs, and asset-based loans each have different documentation requirements that might work better for your situation.
Consider delaying your home purchase if possible. If you're six months into a new business, waiting until you have 12-24 months of operating history will dramatically improve your mortgage options and potentially save you thousands in interest over the life of the loan.
Improve your documentation. Even without a CPA letter, thorough profit and loss statements, clear bank statements, and organized financial records make the underwriter's job easier and increase your approval odds.
Working with Flagstone Mortgage on Self-Employed Applications
At Flagstone Mortgage, we specialize in mortgages for borrowers who don't fit conventional boxes. Self-employed applications are our specialty, not an exception.
We understand the difference between what your tax return shows and what you actually earn. We know how to structure applications to maximize your qualifying income. And we know when a CPA letter adds value to your application and when it's just extra paperwork that won't help.
When you work with us, we'll tell you upfront whether you need a CPA letter and exactly what it should address. We'll provide guidance to your CPA if needed. And if there's a better documentation path for your situation, we'll explain your options honestly.
Self-employed borrowers often get frustrated with lenders who don't understand their income structure. Our loan officers speak your language because we work with self-employed clients every day.
Ready to explore your mortgage options as a self-employed borrower? Contact Flagstone Mortgage to discuss your situation. We'll review your income documentation, let you know if a CPA letter would be beneficial, and outline the most efficient path to mortgage approval for your specific circumstances.
Flagstone Mortgage specializes in non-QM and alternative documentation mortgages for self-employed borrowers, business owners, and real estate investors. Our team understands the unique challenges of self-employment income verification and offers customized solutions including bank statement loans, asset depletion programs, and conventional mortgages with CPA verification.