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Old 03-20-2011, 06:54 PM
 
187 posts, read 375,868 times
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We are looking to make a new purchase and trying to get an idea of where we need to be with regards to numbers, etc. We are both self employed and income is right around $120k (gross before expenses) if we use just my husbands and about $155k if we use both of our incomes. Because of the self employment it is difficult to use an online mortgage calculator. We prefer to keep me off the mortgage/title for various reasons.

So, with excellent credit, 750, $650 in monthly debt (car lease) and 15-20% down can anyone give me a ballpark on mortgage amount we would qualify for? I realize this is a very, very vague question so any thoughts are appreciated. Thanks.
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Old 03-21-2011, 12:38 AM
 
Location: Laguna Niguel, CA
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It's the self-employment income after business expenses that qualifies, not gross before expenses.

Do you have your 2009 & 2010 federal tax returns?
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Old 03-21-2011, 04:04 AM
 
Location: MID ATLANTIC
8,411 posts, read 21,646,474 times
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When you say self employed, do you mean you file on Schedule C? If so, we will take the net and then add back any depreciation for two years. So, if you have 120K gross, $3,000 depreciation, and a 100K net for year one.......and then for year two, $100K gross, $1000 depreciation and 95K net, the math is.......100K + 3K + 95K + 1K = 199K divided by 24 months = $8291 monthly income used to qualify. (also, be sure to check Schedule A, line 21, to make sure there aren't additional expenses listed there - if there are any, be ready to prove who those expenses belong to if you both are self employed). Good luck.

If either of you file on an 1120, it's a *similar process, with a couple twists.
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Old 03-21-2011, 07:55 AM
 
Location: Long Island
9,754 posts, read 21,729,612 times
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Quote:
Originally Posted by chicagoRE View Post
We are looking to make a new purchase and trying to get an idea of where we need to be with regards to numbers, etc. We are both self employed and income is right around $120k (gross before expenses) if we use just my husbands and about $155k if we use both of our incomes. Because of the self employment it is difficult to use an online mortgage calculator. We prefer to keep me off the mortgage/title for various reasons.

So, with excellent credit, 750, $650 in monthly debt (car lease) and 15-20% down can anyone give me a ballpark on mortgage amount we would qualify for? I realize this is a very, very vague question so any thoughts are appreciated. Thanks.
You didn't say what State/area you're in. If you're in a high RE tax area, that would affect the amount also.
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Old 03-21-2011, 09:09 AM
 
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Be prepared to explain any unusual events that relate to your income.
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Old 03-22-2011, 10:42 AM
 
187 posts, read 375,868 times
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Thanks. We are in IL (Chicago) and taxes are high. Yes, we have both returns (biz returns) We have 2 corporations. We have not done our 2010 personal yet, next week. Honestly my husband handles all of this and I really do not understand/follow our biz taxes. He also owns an investment property with his brother (a condo & monthly rent covers most everything) I believe there is perhaps 20% equity in the property. The good thing is the mortgage is not in his name. My expenses were very low since I have been working part time, maybe $5k, his much more, closer to $25k.

My income will most likely double this year and his most likely stay the same. We are looking for a $417k mortgage amount or so. I guess maybe the better question would be what numbers do we need to hit in order to qualify for this mortgage amount. This was much easier when we bought our current home w/ a no-doc loan:-)
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Old 03-22-2011, 01:34 PM
 
Location: Laguna Niguel, CA
768 posts, read 4,223,596 times
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I'll give you numbers but they are just a starting point. The only fact that we know about your numbers it that there is a $650/mo lease payment.

Other variables that would need to be known are if you are looking for a house or condo, and where in the Chicago area you are buying (taxes vary quite a bit depending on where).

If you are buying a house with a 2% tax rate, and $1,200/year for insurance, with 20% down, $417k loan amount, using a 5% interest rate, the payment would be $3,207/mo ($2238.55 P&I, $868.75 taxes, $100 insurance). If you had qualifying income of $10,000/mo that would put your housing ratio at 32% and your total debt ratio at 38.5% - which would easily qualify. $9k/mo of income, the ratios go to 35/42%, which also is fine, but at $8k/mo they go to 40% & 48%.... the housing ratio isn't a problem, but the total debt ratio going over 45% can be, as a lot of mortgage lenders cap their debt ratio out at 45% (even though Fannie Mae & Freddie Mac permit higher). However if you go to a lender who doesn't impose their own "overlay" guidelines then up to a 50% debt ratio with Fannie Mae loan programs, and a 55% debt ratio with Freddie Mac loan programs, can qualify. At $7k/mo, your housing ratio would be 45% & total debt ratio would be over 55% - disqualifying you.

But you see there are many variables, so the numbers here aren't exact to your situation.
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Old 03-22-2011, 05:46 PM
 
187 posts, read 375,868 times
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Thanks Shane, that helps. We are looking at a single family in the north suburbs of Chicago. Average tax on a $500k house will be 8-9k per year so your estimate is about right. The only other debt is a student loan payment of $190 per month, no cc debt.

I appreciate it!
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Old 03-22-2011, 07:01 PM
 
Location: Laguna Niguel, CA
768 posts, read 4,223,596 times
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Welcome!
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Old 11-17-2012, 03:48 PM
 
Location: Anchorage
837 posts, read 1,685,470 times
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Default Paperwork

Quote:
Originally Posted by SmartMoney View Post
When you say self employed, do you mean you file on Schedule C? If so, we will take the net and then add back any depreciation for two years.
Can anybody tell me, please, what documents as a proof are usually required for self-employed income? I heard of two years tax return (obviously), but nothing else. I never had to file it before - this year would be the first as self-employed, so I don't even know about what forms will be used to file, etc. (the abovementioned "schedule C" or anything else). But, perhaps, it might be actually better to ask and know ahead of the time?
My hope/plan is that with this 2012 and after 2013 return to qualify for a mortgage. But I want to also make sure to get ALL the paperwork needed (if I can help it), before then.

Bank statements, perhaps? If so - for all of the 2 years, 1 year, 6 months? Itemized anything? I don't think I can get a contract to show and don't have business expenses to speak of.
Also, do they only take into account taxable income after all deductions (dependants), etc.? Because that would lower it quite a bit. Or, should I not even claim any dependants this year (if that is even OK to do)?

I also have other income - but that one is easy.
Have another mortgage (unless I sell by then) with 25% equity - collateral?
NO other debt and good credit (750). Aiming for 20% down, FHA or conventional.

PLEASE
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