US Army Reserve (Just Joined) & Overtook an S-Corp: Can get 2nd Mortgage? (home loan, California)

[varanj_16]

Hello,

One of my friend just completed her army training and is now a soldier (reserve duty). Also, she is getting a company (S-Corp) sold out and transferred over to her name soon (100% single shareholder).

The goal of this post is to find out if she can get a 417k mortgage approved to buy a 2nd property for her family or her 1st property (considering husband was the only one on whose name/credit history/job etc --the 1st house was bought and the house title also had only husbands name)

Considering the company is 5 years old, had 300k in revenues, & 40k profit last year, please help in answering the following questions:

1. Her husband recently got their 1st home entirely on his name, so the possibility of bank issuing another loan seems impossible considering the debt to equity ratio problem being already close to 45%

2. She doesn't have any income at the moment and it will take 5 years before she can qualify for VHA (500k) home loan via Army Reserves

3. Is there a way, she can get a mortgage approved on her name using the company (S-Corp) of whose 100% share belongs to her?

4. If yes to #3, What documents will a lender/mortgage would need other than a P&L Company Statement, 1120S and Personal Tax Filing documents to determine if they can grant a loan or not? Since all of the existing company profits etc. are going to be 100% transferred over to her, will a lender consider last 2 years tax return of the company as a deciding factor or will they only go by what happens in future in this company and will not grant a loan?

5. She is also planning to get a car on her company name considering it will be declared as expense on taxes, this will be perhaps only if she gets the home loan successfully 1st.

Kindly share your insights.

Thanks a lot for your time and help to go through the details.

[AZ Manager]

1st home and 2nd home doesn't matter what matters is primary residence and investment. What also matters is what state you are in and how they handle debts in a marriage. Judging solely based on the situation, the company only profits 40k a year, there would be no way to qualify for a 417k mortgage. You also need to be careful of how you use that vehicle you can't just buy it and use it for personal use and deduct all your personal use from your taxes just because you ran it through the business. I see a serious tax audit in the future.

[varanj_16]

Thanks AZ Manager, assuming the state is California and 2nd house is now primary residence with the 1st one rented out, yeah the declared profits are low at the moment. If the profit reaches atleast 100k/year, then there might be a chance for 417k, and yes vehicle should have business use as primary to qualify under tax expenses.

[AZ Manager]

Originally Posted by varanj_16

Thanks AZ Manager, assuming the state is California and 2nd house is now primary residence with the 1st one rented out, yeah the declared profits are low at the moment. If the profit reaches atleast 100k/year, then there might be a chance for 417k, and yes vehicle should have business use as primary to qualify under tax expenses.

Lot of IFs in there as it stands your friend does not qualify for anything more than about 165k mortgage, no other debts at 40k income and zero down.

1) CA is a community property state so a lender can include his debts and income into the calculations. Also if they just got a mortgage there is almost always a 1 year rule in there that states you will occupy the home for the first year and not doing so is mortgage fraud.

2) As an S-Corp owner she needs to talk to a CPA to determine how much income she should give herself as the owner.

3) It is very rare for an S-Corp to have loans assigned to the company, they are all personally backed by one or more officer(s) of the S-Corp. S-Corps cannot buy a primary residence which would put them into investment property rates which are higher than primary residence rates. Furthermore if you were to transfer title of the property at any time there are some pretty steep tax implications.

4) Short answer to #3 is no.

5) The car will be owned by the company for tax purposed but she will have to back the financing personally.

You really need a good CPA since you don't know the basics about S-Corp and financing.