Running a small business when applying for a mortgage can bring complexity into an already stressful application process. Due to this added complication, the mortgage lender might ask for extra explanations and letters in order to approve the loan. This is a unique scenario where having a CPA as your accountant will give you a leg up compared to an Enrolled Agent or uncredentialed tax preparer. This article focuses on what a CPA can provide without a costly attestation engagement.

As a small business owner, you must understand what your CPA can offer in these circumstances. Know that some of the mortgage lender’s requests are unreasonable but they will likely accept an alternative letter. For example, template letters from mortgage companies rarely include required disclosures, making them unusable, but they will accept a similar letter. Work with your CPA to come up with wording to the CPA’s satisfaction.

1. Income Verification
Although you’ve provided your tax returns, the mortgage company may want a separate verification of income. While this may seem redundant since the information is provided in the tax returns, someone has to check a box in your application so a letter must be submitted. If a CPA has prepared your tax returns, this should be a simple request to fulfill. There are numerous sample letters online that include the required disclosures so that a CPA can sign it and not violate AICPA Attestation Standards.

2. Verification of Business Ownership
When your business is relatively new, usually less than two years, you might be asked to provide a letter that you’ve been in business for X years doing Y work. This letter can be tricky to prepare because a CPA can’t directly attest to this fact without a costly attestation engagement. However, an acceptable alternative is a letter confirming that for years A to B you’ve had business income on your tax return and that the associated business industry code was listed as Y. Like the income verification letter, this letter reiterates information from the tax return, thus turning the request into something a CPA can sign.

3. Explanation of Tax Return
Mortgage brokers and underwriters are not tax professionals. Thus, if you have a complex tax return, it’s likely that they will require additional explanations. Like all the letters a CPA can provide without an attestation engagement, no new information is included; rather, the letters show a rearranging of information already provided in the tax return. An example of this is non-W2 wages like nominated wages or guaranteed payments from a partnership.

4. Projection of Future Income
A CPA is not able to provide any type of letter that speaks to future events such as projected future income or future liquidity of a business. No one can predict the future. While there are CPAs who engage in preparation of financial projections or pro forma financial statements, those engagements are very costly and usually unnecessary for small businesses. It’s best addressed with a letter stating that such attestations are not allowed by AICPA standards.

5. Assurance for Funds Withdrawal
If you plan to use funds in your business account for a down payment, it’s best to withdraw the funds at least 90 days in advance of the anticipated purchase date—but the sooner the better. If you haven’t, the mortgage company might ask for a letter to attest the business won’t implode without these funds. Like the projection of future income letters, CPAs can’t provide these types of letters. For pass-through entities—sole proprietorships, partnerships, and S-Corps—which pay tax on business net income not distributions, a suitable alternative is a letter stating that the funds are already taxed income and thus are not taxable upon withdrawal.

Applying for a mortgage can be a stressful time for business owners as the required documentation is sometimes more demanding compared to a W2 employee. Be sure to understand what the mortgage company is asking for and work with your CPA to address each request. Some requests can’t be fulfilled because they would violate AICPA standards; however, there are acceptable alternatives that can still allow the mortgage company to check its box and move your application along.