The federal government introduced the Home Affordable Modification Program to give distressed borrowers a trial-period or permanent loan modification based on their financial circumstances. Homeowners present income, asset and debt information and documentation to back it up, such as pay stubs, bank statements and tax returns. The self-employed must also submit their most recent or quarterly year-to-date profit and loss statement, according to the HAMP Servicer Handbook. It shows the lender how much the homeowner makes by summarizing business income and expenses and net income or loss for a period. Most lenders accept a basic, homemade, non-audited statement.
Title the statement with your business name, followed by "Profit and Loss Statement" in the sheet's header. Typically, the name should be consistent with that which was used for the business bank account or business license, as the lender will reference these items as well.
Indicate the time period for the profit and loss statement. When generating the most recent quarterly (three-month period) statement, indicate the beginning and ending date for the quarter. If generating a monthly profit and loss, list the month for which each statement applies, as the lender will likely require three of them. Put this information directly under the profit-and-loss header.
Create a row itemizing all revenues, income, sales or commissions generated by the business under the heading of Gross Income or Revenues. The name of the type of income is listed to the left of the sheet, while the amount in dollars is listed directly to the right of it at the other end of the sheet.
Calculate the total income generated and put it at the bottom of the row, or section, next to the words Total Gross Income, Total Revenue or Total Sales.
Create an itemized list of the business costs, or Cost of Sales, in a separate row below the Income section. Acceptable costs are those that were paid to obtain any goods sold. The business may not have such costs, in which case this row does not apply.
Calculate the total of the costs and put them at the bottom of the row with Costs of Sales on the left and the amount to the far right.
Itemize business expenses in a third section, or row. Business-related expenses include advertising, marketing, fees, transportation, professional services, rent, utilities, supplies, labor, employee benefits and other items paid for exclusively for business purposes.
Calculate the total business expenses and put them at the bottom of the section with Total Expenses on the far left and the dollar amount to the far right.
Deduct the total amount of costs and expenses from the total income. Put this difference at the bottom of the profit and loss statement next to the term Net Profit or Net Loss. If the calculation is a positive number, it is a profit; but if it is a negative number, it is a loss.
Lenders vary in their requirements for profit and loss statements, but generally, they request a computer-generated statement. Homeowners may use a software program or spreadsheet, as well as a word processing program to prepare it. Because the statement could show a profit for a period in which the homeowner missed mortgage payments or had a very low bank account balance, the lender may request further documentation. They might request more months' worth of bank statements to clarify discrepancies or supplement an insufficient profit and loss. HAMP lenders may require up to four months of bank statements as an alternative to the profit and loss statement, according to the servicing handbook. Depending on the homeowner or lender's preference, the profit and loss may be formatted with columns reading from left to right, or in a row format reading from top to bottom, such as the one suggested here.
Things You'll Need
Word-processing or spreadsheet program
Receipts and invoices for sales and expenses
- "Huffington Post"; How to Prepare for Your Loan Modification; Adrian Sainz; July 2009
- Making Home Affordable: Handbook For Servicers of Non-GSE Mortgages: Self-Employment Income (PDF)
- Nolo: Profit and Loss Statement
- Nolo: Save Your Small Business: How to Prepare a Profit and Loss Forecase and Cash Flow Analysis
- Amegy Bank of Texas: How to Prepare a Profit and Loss Statement
- MSNBC: What's the Difference Between Revenue and Income; John W. Schoen; 2009
- Making Home Affordable: Home Affordable Modification Program