There has been an increasing trend of banks, landlords, and/or lenders asking self-employed individuals for a CPA letter for mortgage to certify, vouch for, or attempt to estimate the income of the applicant.
This income statement is then assessed by the lender when determining whether the loan should be approved. Some examples of requests (variable wording but roughly the same request) include:
- CPA-certified letter projecting income
- CPA letter verifying income is consistent with prior years
- CPA verification of employment
- CPA verification of income
- Financial projection/estimate
- CPA Income Projection
- 12 or 18 month Income Projection
- Financial statement signed by CPA
- Statement of Net Worth
Sometimes, the lender also requests this CPA letter to be notarized (the CPA must sign in front of a notary).
With the right disclaimer, it is possible to both meet the paperwork and compliance needs of the bank while also preserving the integrity of the CPA.
The types of persons being asked for such types of letters include:
- Contractors
- Those paid on 1099
- Persons owning a single-member LLC or other small business
- Freelancers
- Self-employed individuals
When applying for a mortgage or other types of loans, lenders often require proof of income to ensure you can repay the loan. For self-employed individuals, freelancers, and business owners, traditional methods of verifying income, like W-2s or pay stubs, may not be applicable. In such cases, a CPA letter for a mortgage can provide the necessary documentation to confirm your income and financial stability.
In this blog, we’ll explain what a CPA income verification letter is, when you might need one, and how to ensure it meets the lender’s requirements.
What Is a Letter CPA for Mortgage?
A CPA letter for mortgage, also known as an accountant’s letter, is a document provided by a Certified Public Accountant (CPA) to verify a client’s income and financial standing. This letter is often used by self-employed individuals or small business owners to satisfy lender requirements during the mortgage application process.
Key Components of a CPA Letter
- Verification of Income: Confirmation of the borrower’s earnings over a specified period.
- Business Details: Information about the borrower’s business, such as name, type, and duration of operation.
- Professional Opinion: The CPA’s statement affirming that the borrower’s financial information is accurate and reliable.
- Licensing Information: Details about the CPA’s credentials and licensing to establish credibility.
When Is a CPA Letter Needed?
A CPA letter is typically required in situations where traditional income documentation is unavailable or insufficient. Common scenarios include:
1. Self-Employed Individuals
- Entrepreneurs and small business owners often don’t have W-2s or standard payroll records. A CPA letter can serve as proof of consistent income.
2. Freelancers and Gig Workers
- Those working in the gig economy or as independent contractors may need a CPA letter to verify their income.
3. Real Estate Investors
- For individuals with income derived from rental properties, a CPA letter can confirm rental income and expenses.
4. Recently Transitioned Careers
- If you’ve recently moved from traditional employment to self-employment, lenders may request a CPA letter to confirm your financial stability.
What Should a CPA Letter Include?
A well-prepared CPA letter for mortgage purposes should meet the lender’s requirements while providing an accurate and professional representation of the borrower’s financial situation. Here’s what it should include:
1. Client Information
- Full name of the borrower.
- Business name (if applicable).
- Address and contact details.
2. Income Verification
- Annual income for the past two or three years.
- Details on income sources (e.g., business revenue, rental income).
3. Professional Opinion
- A statement affirming that the borrower’s income has been reviewed and is consistent with their financial documents.
4. CPA Credentials
- The CPA’s name, certification details, and contact information.
- State license number or registration for verification purposes.
How to Obtain a CPA Letter for Mortgage
To ensure your CPA letter meets the lender’s requirements, follow these steps:
1. Provide Complete Financial Information
- Share accurate income and expense records, such as tax returns, profit and loss statements, and bank statements.
2. Communicate with Your CPA
- Inform your CPA about the lender’s specific requirements for the letter, including any templates or guidelines provided.
3. Ensure Professional Formatting
- The letter should be typed, formatted professionally, and printed on the CPA’s official letterhead.
4. Confirm Compliance with State Regulations
- Some states have specific rules regarding what CPAs can disclose in income verification letters. Your CPA should be familiar with these requirements.
Common Mistakes to Avoid When Requesting a CPA Letter for Mortgage
When requesting a CPA letter for mortgage purposes, avoid these common pitfalls to ensure the process goes smoothly:
1. Incomplete Information
- Missing details, such as the borrower’s income history or the CPA’s credentials, can delay the approval process.
2. Ambiguous Language
- The letter should use clear and precise wording to avoid misunderstandings with the lender.
3. Lack of Supporting Documents
- While the CPA letter provides a summary, supporting documents, such as tax returns or bank statements, may also be required.
Benefits of Using a CPA Letter for Mortgage
A CPA letter can streamline the mortgage approval process by providing a trusted, professional opinion on your income and financial stability. Key benefits include:
- Credibility: Lenders trust CPAs as licensed professionals who adhere to strict ethical standards.
- Personalization: The letter can be tailored to reflect your unique financial circumstances.
- Compliance: Ensures your documentation meets the lender’s and state’s requirements.
How Dimov Tax Can Help
At Dimov Tax, we specialize in assisting self-employed individuals, freelancers, and business owners with their financial documentation needs. Our team of licensed CPAs can prepare a professional, lender-approved income verification letter that highlights your financial stability.
Our Services Include:
- Preparing CPA letters tailored to your lender’s requirements.
- Providing additional supporting documents, such as tax returns and financial statements.
- Advising on tax strategies to optimize your financial situation.
CPA Letter for Mortgage: Get Started Today
If you’re in need of a CPA letter for mortgage, let Dimov Tax simplify the process. Our team of experienced professionals will ensure your documentation meets all requirements, helping you secure your mortgage without unnecessary delays. Contact Dimov Tax today to begin the process of receiving your letter.
