Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am self-employed, and am looking for a mortgage loan next year. I need to figure out how lenders will be underwriting my qualifications/income. From what I understand, self-employed borrowers will generally have to qualify using schedule c's AND 1040's? So, how should I minimize taxes without it degrading all my income for the underwriters' sake?
Can depreciable assets or assets that you've marked for depreciation on your self-employed business income be added back into the income?
Can home office expenses, such as rent I paid for my apartment and utilities, that I used as a home office expense for my business be added back into my income when qualifying for a mortgage loan?
I have a couple of one time operating costs for my sole proprietorship such as a logo design for my business, can this type of expense also be added back onto my net income?
If I take the federal standardized deduction on my personal federal tax return, that deduction reduces my taxable income? Will that deduction reduce my home buying power since it lowers my personal taxable income? If this negatively impacts it, do I have to take this deduction, or can I itemize as 0?
I may make a contribution to an IRA account, can that money be added back into income and/or mortgage income qualification?
If I plan on being very aggressive with personal tax deductions, will this also lower my mortgage qualification ability?
Thanks for your help, last year when I applied, the "mortgage banker" at the place I found just tried selling me, applying a hard inquiry on credit report, said he could "make it happen", then dropped it. So I'm trying to do this right and get approved for as big of a house as possible.
Being aggressive does hurt your ability. Use cell phones for example. Most W2 employee that have a monthly cell phone will not deduct it as an expense, but you will, thus reducing your income.
It's a pain in the ass.
I'm a full time musician and I had to get a "real" job to get my mortgage.
Lenders really drag the self-employed over the coals.
It was easier for me to get a real job compared to the nonsense I was going through with the self employed route. Ugh...
Being aggressive does hurt your ability. Use cell phones for example. Most W2 employee that have a monthly cell phone will not deduct it as an expense, but you will, thus reducing your income.
Hey Lopez,
This worksheet does seem to help the first part of my question regarding Schedule C add back's. What about how lenders view personal income tax returns, will it stack on top of my business, and they reduce the mortgage by taking lets say a standard deduction?
This worksheet does seem to help the first part of my question regarding Schedule C add back's. What about how lenders view personal income tax returns, will it stack on top of my business, and they reduce the mortgage by taking lets say a standard deduction?
Thanks for the spreadsheet btw.
I don't think your personal tax deductions have any bearing on your income qualification on a mortgage. They're looking at your bottom line income on the last line of page 1 of your 1040. After all, the "standard deduction" is the same if you earn $20,000 a year or $20 million.
I just closed on my mortgage two weeks ago. I am a full time w-2 employee but I work from home. The underwriter DEDUCTED everything I used as a deduction on my taxes. So the deductions for home office, etc. were not included in my qualifying income. Luckily the home I was purchasing was well below what I qualified for, otherwise this could have been a nightmare.
I just closed on my mortgage two weeks ago. I am a full time w-2 employee but I work from home. The underwriter DEDUCTED everything I used as a deduction on my taxes. So the deductions for home office, etc. were not included in my qualifying income. Luckily the home I was purchasing was well below what I qualified for, otherwise this could have been a nightmare.
As a w-2 employee, I had never heard of this.
This is interesting, what type of mortgage did you qualify for?
I just closed on my mortgage two weeks ago. I am a full time w-2 employee but I work from home. The underwriter DEDUCTED everything I used as a deduction on my taxes. So the deductions for home office, etc. were not included in my qualifying income. Luckily the home I was purchasing was well below what I qualified for, otherwise this could have been a nightmare.
As a w-2 employee, I had never heard of this.
This is common. Normally it is only brought up if it creates a problem.
Quote:
Originally Posted by Duracell1
Hey Lopez,
This worksheet does seem to help the first part of my question regarding Schedule C add back's. What about how lenders view personal income tax returns, will it stack on top of my business, and they reduce the mortgage by taking lets say a standard deduction?
Thanks for the spreadsheet btw.
Yes it "stacks", schedule C feeds your personal returns. I don't understand the bolded part.
Also I'm speaking about the common Fannie/Freddie type loans. There are other programs that don't follow these guidelines.
OP, what is your net profit on your schedule C for the past 2 years?
Do you or your spouse also earn wages reported on a W-2? How much and how many years at that job?
We worked with a mortgage broker before we applied. And we deducted fewer legitimate expenses in order to show a higher income. Of course, that also meant we paid higher taxes that year.
Lenders can add back in certain write-offs such as depreciation Line 13, depletion and business use of your home line 30. Itemized write-offs such as casualty loss or amortization can also be added back. . 50% of the meals & entertainment expense can be added back, up to 25c a mile deduced can be added back on the mileage write off.
Standard or itemized deductions taken on the 1040 do not impact your qualifying income.
Net Profit/Line 31, then adds back Depreciation (Line 13), Depletion (Line 12) and Business Use of Home (Line 30) which are paper losses (not actual expenses or losses) and any documented non-recurring expense items, then subtracts the Meals & Entertainment expense (50% claimed on Line 24b, the other 50% must be deducted to account for 100% of the expense in the business cash flow), non-recurring income (Line 6) to arrive at the adjusted Net Income figure.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
