P & L STATEMENT
Refinance Options

A Profit and Loss (P&L) Statement Refinance is a mortgage refinancing option that allows self-employed borrowers to qualify for a mortgage based on their business’s financial performance as documented in a P&L statement rather than traditional income documentation such as W-2s or pay stubs. For this type of refinance, lenders assess the borrower’s ability to repay by analyzing their P&L statement, typically covering the last 12 to 24 months, to verify consistent income and profitability. This option is particularly helpful for business owners, freelancers, and independent contractors who may have fluctuating monthly incomes.

Rate-and-Term Refinance
A Rate-and-Term Refinance is designed to adjust either the interest rate or loan term, or both, on an existing mortgage without taking out additional funds.

– With a P&L rate-and-term refinance, lenders use the P&L statement, sometimes alongside other business records or bank statements, to determine if the business generates sufficient cash flow to meet the revised mortgage payments. This makes it possible for borrowers with non-traditional income to benefit from refinancing even if they don’t have standard income documentation.

– The primary goal is to reduce monthly payments by securing a lower interest rate or to shorten the loan term to pay off the loan faster.

Cash-Out Refinance
A Cash-Out Refinance enables a borrower to refinance their mortgage for a higher amount than they currently owe, receiving the difference in cash.

– With a P&L statement cash-out refinance, the lender examines the P&L statement to ensure the business can support the additional debt from the larger loan amount. The cash flow shown on the P&L gives the lender confidence in the borrower’s ability to handle increased payments, which may result from a higher loan amount.

– This type of refinance can be advantageous for accessing funds for business expenses, debt consolidation, home improvements, or other financial needs.

Primary Considerations 
– Flexibility for borrowers whose income varies from month to month or who don’t receive traditional paychecks.

– Ability to leverage business earnings to qualify for refinancing without relying on standard personal income documentation.

– Simplified qualification process using P&L statements rather than relying on tax returns, which may understate actual cash flow due to deductions and write-offs.

– Interest rates on P&L statement refinances are often higher than standard refinances due to the increased risk lenders perceive from non-traditional income verification.

– Lenders may require a CPA or tax preparer to verify the P&L statement’s accuracy, particularly if it was self-prepared.

– It may be harder to qualify if the P&L shows large fluctuations or inconsistency in income, as lenders look for stability.

A P&L statement refinance offers self-employed borrowers and those with non-traditional income a way to access refinancing options similar to those available to traditional employees. This flexibility allows borrowers to manage their mortgage terms or access their home’s equity based on their business’s financial health, making it a valuable tool for entrepreneurs and independent contractors.