Mortgage Help for Self Employed Borrowers
The purpose of being self employed is NOT to pay as much in taxes as you can. I get it. But for many self employed individuals writing off too much of their income ca
n prevent them from buying a home.
With tax season quickly approaching NOW is the time to get together with your Mortgage Professional to review your 2 years previous taxes AND be sure that your filing for 2010 is not going to throw a wrench in your Spring/Summer Homebuying experience.
How is self-employed income determined?
Underwriters typically average your previous 2 years of taxes in order to determine your qualifying income (simplified formula is Net Income + Depreciation + many ONE TIME expenses) plus a Year to Date profit and loss statement. ***They also verify your income with the IRS***. If you are filing your taxes in the middle of a purchase or refi then what you claim may cause your application to be denied! A solution may be to file an extension or claim a bit more than previous years, depending on your situation.
Steps to take for the Self Employed Borrower
- Get your last 2 Years of full tax returns to your Mortgage Professional NOW if you have any desire to buy or refi in the next year.
- Set up a meeting with your Mortgage Professional and your Tax Pro. They should BOTH be part of your financial team and everyone should be on the same page.
- If you have been turned down for a Mortgage get a second opinion. Many greener Loan Officers do not know HOW to read your taxes and are scared off by self employed borrowers. This can also be said of some underwriters and banks!
- If you truly need a Stated Income Loan they do still exist. They are limited to 65% Loan to Value and carry a higher interest rate, but they are still doable for Self Employed borrowers
If you are Self Employed and want to Purchase or Refinance then give us a call! We would be more than happy to help you achieve your dreams!
KP
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