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Understanding Profit and Loss Statements for Self-Employed Borrowers

When applying for a mortgage as a self-employed borrower, you may be asked to provide a Profit and Loss statement—also known as a P&L. This is especially common if your most recent tax returns haven’t been filed yet, or if a lender needs to validate your current income.

This doesn’t happen often but could be required substantiate a trend in a business’s growth pattern and help us determine your Qualifying Income.

A P&L can typically be created by your accounting software (like Quickbooks, Quicken, etc.) and it outlines the revenue and expenses of a business. P&Ls often mimic the Schedule C for the Sole Proprietors or the business tax returns for business owners. Below is a generic example of a P&L.

Let’s walk through what it is, why it’s sometimes needed, and how it fits into the mortgage process.

What Is a Profit and Loss Statement?

A Profit and Loss statement (or income statement) shows the income and expenses of your business over a set time period. It gives lenders a snapshot of how your business is performing and whether the income you’ve reported in prior years is continuing at the same pace.

It typically includes:

Gross revenue (your total business income)
Operating expenses
Net profit or loss (what’s left after expenses)

Think of it like your business’s report card. It shows how the year is going so far—especially useful if you haven’t filed taxes yet.

Income Statement vs Profit and Loss

The terms income statement and profit and loss statement are used interchangeably. They both serve the same function: to summarize your business’s financial activity during a specific period.

Why Would a Mortgage Lender Ask for a P&L?

Let’s say it’s June, and you’re applying for a mortgage. Your tax returns for the last two years show solid income, but it’s halfway through the current year. An underwriter might request a year-to-date P&L to confirm that your business is still doing well and your income hasn’t dropped.

The key takeaway here: A P&L does not replace your tax returns. It’s used to validate—not calculate—income when needed.

Here’s how it works:

If your last two years of tax returns average $175,000 in income, a lender wants to ensure your current year is on pace.
If your self-employed profit and loss statement shows you’re still trending toward that number (or higher), great.
If your P&L shows a decline in income, expect questions from underwriting. It doesn’t mean you’ll be denied, but it does raise a red flag.

Who Creates the P&L?

You can create your own profit and loss statement using accounting software like QuickBooks, Wave, or even an Excel profit and loss statement template. Just be accurate. A lender might ask for your CPA or bookkeeper to verify it—especially if it seems inconsistent with your prior tax returns.

While some P&Ls are simple (a few lines in Excel), others are more detailed and mimic a Schedule C or business tax return. The more complete and accurate, the better.

Does the P&L Need to Be Audited?

Not usually. Most lenders accept an unaudited profit and loss form if it aligns with past tax returns.

But if the numbers are significantly higher or lower than before, an underwriter might request a CPA to audit and confirm its accuracy.

In some cases, if the lender sees a sharp drop in income—or the business appears to be trending downward—they may not be able to use your previously averaged income.

What About Balance Sheets?

Some borrowers ask about the profit and loss statement vs balance sheet. Here’s the difference:

A P&L shows income and expenses over time.
A balance sheet shows your business’s assets, liabilities, and equity at a specific point in time.

For mortgage purposes, lenders usually ask for the P&L. A common size statement of profit and loss (where numbers are shown as percentages) is not typically required for residential loans.

Need Help With Your P&L?

If you’re self-employed and not sure how to make a profit and loss statement, or if you’ve been asked to provide one for a home loan, we can help. We’ll walk you through the process, review what you’ve got, and make sure you’re set up for success.

Whether you’re buying a primary home, vacation property, or investment property, our team knows how to work with self-employed borrowers. This isn’t our first rodeo—and we’re here to make it easier.

When you think mortgage, think Mark.

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