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We have just submitted a contract for a neat little cape cod home in need of some TLC. However, I'm unsure which type of mortgage would be best for us (or what we would even qualify for). Our scenario:
Self employment income- $38k for 2013/new territory added for 2014- new income estimated this year at $46,000. So lenders will average this out at $42,000.
Mortgage amount: 101,000
725 credit score
$10,000 saved for down payment.
The kicker: We previously leased a truck that did not pull on our personal credit. The company we contract for leases them out privately, so our taxes always reflected a lease payment but our credit score didn't.
We purchased a Dodge Ram 2500 to replace the creeky old box truck, the payment amount is the same as before, but of course, we financed it on our personal credit. Payment is $622. Now there is a chance we can make that go away by filing LLC and refinancing it in the business only (our personal bank is willing to do this), but it's a lot of headache and a possible blip on our credit since the account is only 4 months old.
Would a conventional loan with ~10% down be better than USDA? Which loan type is likely to be more "forgiving" for this type of debt?
It's likely to come into play by showing up in 1) your tax returns, and 2) your bank statements (is payment made from personal or business account?)
If you can document the payment has been made from business funds for a 12 month period, you may get this debt to be offset from your monthly obligations.
Thank you for that information! The lease has always been business account (going on 4 years) but the truck was purchased July of this year. It is indeed paid with business funds.
Because we only have 10% down, would it make more sense for us to go USDA and pay our closing costs with it?
Okay, your gross doesn't come into play because your payroll could run you 130K and you would be broke.
You will most certainly need 2 complete years of tax returns, filed and transcripts available. File as early as you can in 2014. Pay any tax due. The reason you need two years returns is not for the increased income, but the track record of being self-employed.........can you show a previous year, even if lower than the 38K?
Chances are if you do have a 2 year average, you very well may qualify with that truck payment anyway. Your best bet is to sit down with a loan officer after the first of the year (when everyone is on their New Year's resolutions) and go over everything.......the IDEAL time would be before you filed, but after you have the information on the form. Every self-employed individual has a small window where they can decide if they want to include deductions to their detriment or not. This isn't tax fraud, it isn't mortgage fraud. It's playing by the rules.
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