Are you a self-employed person and when tax time comes around you either get very creative or ask your CPA to get very creative or ask your CPA to get very creative so that you can all as very little to the IRS as possible? Well congratulations on reducing your taxable income! But if you are a self-employed person qualifying for a mortgage, that might not be such a great idea
The Mortgage Minute is weekly informational series presented by Laura Borja, Your San Diego Home Loan Expert.
You may have saved yourself some cash in reducing your taxable income so you don’t have to pay Uncle Sam but you might be shorting yourself in your ability to qualify for that home that you want for you and your family.
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How lenders look at self-employed income
As a self-employed person qualifying for a mortgage you need to understand that lenders do not use the gross profit or gross receipts of your business. We start off with looking at your net profit, the very bottom line. Lenders then look at all your tax forms, which is why you are asked to provide complete tax returns. There are some items that we add back in. Some items that we deduct from your income to calculate what we consider to be your qualifying income for self-employment That amount might be a small percentage of what your business is actually taking in.
What if income is better one year than another?
Keep in mind that in most cases, lenders will require two years of tax returns and income is averaged over 24 months. Making a change in the amount of income you report may not necessarily help right away .
|
Year |
Qualifying self-employment income |
Monthly Average |
|
2016 |
$76,000 |
$6,333 |
|
2015 |
$23,000 |
$1,916 |
|
24 month average: $4124 |
||
The two year average may not be enough to qualify for that home loan that you want for you and your family
There you have it. A quick look at why the income on tax returns is so important when you are a self-employed person qualifying for a mortgage.
Have any questions or maybe want to know how much qualifying income your tax returns show us?
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