Important Mortgage Warning For Self Employed Individuals

Services for Real Estate Pros with Certified Mobile Notary Signing Agent NMLS #268590

As a Mortgage Loan Originator, I deal with folks of all different income brackets and lifestyles.   Yes, some of us remember the old TV show, "Lifestyles of the Rich and Famous" where people made big incomes and lived in big houses and drove fancy cars.   But getting a mortgage is a whole different ball game.   Appearances alone aren't enough.

For people with higher incomes, they commonly use their income in ways that can be deducted or "written off" on their annual Income Tax forms.   As a result, their tax burden is lower and they get to keep more of their money in hand.   Sounds like a great plan, doesn't it ?   In most cases, the answer would be yes but in the world of mortgages, that might not be a good thing.

I get a call from a potential client.   They say their monthly income is around ten thousand dollars a month and they want to purchase a new home.   I'm thinking that shouldn't be difficult with a six figure annual income.   So I get the necessary information from the client in order to preapprove them.

OK, confirm the employment as a consultant.   Makes the salary I was told; good.   Get the credit report and it is within the range for a good rate.   I'm just about done here and it's looking good for them to buy that house they want.   One more thing; have to check the tax returns for the last two years.

Uh - Ohhhhh.   This is BAD !   This is REEEEALLY BAD !   The client is self employed.   The job requires a lot of travel and I mean a LOT of travel.   I could not believe my eyes when I got to the line for "Adjusted Gross Income" on the form 1040.   That figure was barely $3,000.00 per month.   What ?

Why is this so low ?   I began to go through the pages and pages of the first return and there was the answer.   Just to make sure it wasn't a fluke, I went through the second year's return and yep, there it was again.   I didn't realize one person could travel that much.   There were pages and pages and pages of tax write offs for all kinds of various travel expenses.

From airline tickets to rental cars, hotels to restaurants, clubs and taxis; there were expenses coming and going.   Self employed persons often have write offs but this one took the cake.   After all of these deductions, the debt to income ratio was at 90%.   This person CAN'T be approved.

Qualifying for a mortgage is based on your actual, reported income; not your salary.   If you write everything off, you have NO INCOME.   That's right, according to the form 1040 tax returns this client had filed, this person was spending ninety percent of their income on their debt load.

It doesn't matter that you have a six figure income.   You don't qualify regardless of how many BMWs are in the driveway.   The outward appearance of wealth does not qualify you for a mortgage.

A big salary is not enough to be approved for a mortgage.   If you are self employed and usually have a large amount of write offs, you might want to get with your accountant now and review your "Adjusted Gross Income" for the last two years.   You may be able to amend your returns.

It is best to plan ahead so that you are documenting sufficient income to qualify for a mortgage.   If you fall into this category, I can help.   Putting together a plan two years BEFORE you are ready to buy is the solution.

We will go over your documented income and determine if it is adequate to qualify for the mortgage you want.   If not, we can work toward that goal in a planned manner so that there will be sufficient documented funds when it comes time to do your mortgage.

I hate rejecting an application for a mortgage.   And I bet you hate being rejected too, right ?   Then let's avoid this pitfall and plan ahead of time.   The best idea is to prepare and heed this . . . . . 


Important Mortgage Warning

For Self Employed Individuals




Deanna Early is the # 1 ranked Mortgage Loan Originator in Franklin County, Virginia as scored by the ActiveRain real estate site.   She is a Nationally Licensed Mortgage Loan Originator located near Smith Mountain Lake, Virginia.   She does both purchase and refinance loans throughout the state of Virginia.   She is a residential loan originator for American National Bank and Trust.   She provides home mortgage loans, construction loans and lot loans as well as second or vacation home loans and investor financing.

Please visit her website at   and learn more in the Virginia Mortgage Blog

You can contact her for your financing needs at (540) 721-2349 or by email at  ""

The views expressed in this post are mine only and do not necessarily reflect the views of American National Bank and Trust Company.   Any scenarios presented are for illustrative purposes only and are not intended to refer to or represent any actual or specific clients, negotiations or financial transactions.

Comments (6)

Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning Deanna. I met with clients yesterday, that I won't be able to do a mortgage for them at this time as they will need to do their 2015 returns first. Their 2013 returns look really bad, once the 15's are done and the numbers work, they I can get it done for them.

Great job with your post!

Jan 06, 2016 06:36 PM

This is something self employed clients often don't think about until they are ready to move but it needs to be planned out ahead of time 

Jan 06, 2016 09:32 PM
Amanda S. Davidson
Amanda Davidson Real Estate Group Brokered By eXp Realty - Alexandria, VA
Alexandria Virginia Homes For Sale

Deanna, this is something the I see happen a lot with self employed individuals. If planning to buy a home they need to plan ahead with their write offs too. Great post.

Jan 06, 2016 10:48 PM

Planning ahead is a good idea when talking about the largest expenditure most people ever make.

Jan 07, 2016 03:09 AM
Sheri Sperry - MCNE®
Coldwell Banker Realty - Sedona, AZ
(928) 274-7355 ~ YOUR Solutions REALTOR®

Hi Deanna Early - I usually get someone like you involved if the client is not pre-approved yet but if I find out that they are self employed I ask about their tax return.  After all, Realtors are self-employed, we should understand the process. 

Jan 06, 2016 10:51 PM

Unfortunately, this scenario COULD BE a Realtor.   It's not but worth a review by agents who may relocate soon.

Jan 07, 2016 03:11 AM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Deanna I have had the same happen.  The Borrower had a large GROSS income, but the NET gross would barely qualify them for a cardboard box.  Self-Employed can't have it both ways.  Either declare enough income to purchase and pay Uncle Sam the taxes, or don't pay the taxes and don't have enough declarable income to purchase.  They can't have their cake and eat it to.

Jan 07, 2016 01:36 AM

You're right George.   There  is a happy medium and I hope self employed clients will let a professional like us prepare them ahead of time to avoid a rejection.

Jan 07, 2016 03:12 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

I used to work with an agent that would brag that she could write off her entire income. I thought to myself, this isn't a good thing if you ever want to borrow money.

Jan 07, 2016 09:58 AM

If you write it all off, you "ain't got no money !"

Jan 07, 2016 10:34 AM
Lou Ludwig
Ludwig & Associates - Boca Raton, FL
Designations Earned CRB, CRS, CIPS, GRI, SRES, TRC


Your post is right on point and is more common . . . . and as you state it becomes a common issue with a number customers applying for a mortgage.

Good luck and success.

Lou Ludwig

Jan 07, 2016 10:28 AM

I have seen a lot of this with the improving economy so I thought I should share it to make folks aware of the problem it creates.

Jan 07, 2016 10:36 AM