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We're having a frustrating time with our Credit Union. My husband has a steady job he's worked at for 15 years, we have a business we run from our home (self-proprietor) that at this time is bringing in the bulk of our income. We've never used self-employment income before when qualifying for a loan, this will be our 3rd home, and we had no idea how complicated it was! The problem seems to be that we had a very successful year last year (2012) and it's continuing into this year (2013), however the underwriter is wanting to see tax records from 2010 and 2011, both years we have a very meager income compared to now. The business has been in existence since 2000, in 2011 & 2012 we made some business decisions that are now really paying off. Right now (2013) we make gross income of over 20k a month, net is somewhere around 15k, and that is on a steady incline. 2012 monthly net came out to about 10k a month. We are building a new home and we need to have an approval letter before the other bank will start a construction loan. We're looking at a loan of at the maximum $400k, with at least 20% down. We also have a current home with equity of around $80k, which we do plan to sell during the course of the build. We have no debt other than our current mortgage and a low student loan with a payment of $125 a month. Our credit score is somewhere in the 660s. Every loan calculator that we've found says we shouldn't have a problem getting qualified, and when we first talked to our bank they didn't foresee any problems either, but we still don't have an approval letter yet and the underwriter just now asked for 2010's tax return because they said there was such a substantial increase in income for 2012. Does this mean we aren't getting approved? Do lenders average out all 3 years together? I'm nervous we're not getting approved and we'll have to go shopping around for a loan with someone else or maybe we will have to put it all off for a year or two, which is a shame because rates are really low right now and starting to climb. Has anyone gone through this process and knows how this all goes?
Sounds like you haven't filed 2012 taxes yet because self employed are typically asked for 2 years tax returns. If this is the case get them filed ASAP as they are not usable until the underwriter can verify them directly wiht the IRS which takes up to 6 weeks after filing. If you were asked for your 2 most recent years and gave them 2010 and 2011 that is why 2010 is being used.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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We did it, and they required the last two years of profit/loss statements and the actual IRS tax returns (you send a form to the IRS to release them to the lender). Any discrepancy between the profit/loss and the return will end it. That has apparently been a big cause for the foreclosure crisis, business owners exaggerating to get loans they couldn't afford. Keep in mind that a small business, especially home based is more of a risk to a lender than a steady
job. If the incomes were reversed, you'd probably be approved by now.
We are in the process of getting a mortgage and are self employed. They did not ask for 2 years of profit/loss but did ask for two years of taxes (2011 and 2010) but since the house won't be ready until later this year, they will need 2012 taxes now as well plus a YTD profit and loss. It seems it may differ from lender to lender.
We were actually approved but since it's a new build, we have to go through underwriting again when the house is almost ready.
I know it's been awhile but thought I would update for people facing the same situation. Our Credit Union ended up approving the loan, we did have to supply 2012, 2011, and 2010 taxes. They averaged all 3 years together which made our income look way lower than what it really is, but we still inched by the DTI limits. The problem that we faced was with the construction loan. That one we did not get approved for. Apparently the standards for a construction loan were much more strict than the mortgage loan. We didn't shop around for a construction loan, we just continued to look at pre-built homes as we knew we were approved for a mortgage. Now it's the end of 2013, we've been through the ringer ... one failed short-sale purchase (our fault, we got impatient) and currently under contract on a home that we were just informed has a bad roof.
I know it's been awhile but thought I would update for people facing the same situation. Our Credit Union ended up approving the loan, we did have to supply 2012, 2011, and 2010 taxes. They averaged all 3 years together which made our income look way lower than what it really is, but we still inched by the DTI limits. The problem that we faced was with the construction loan. That one we did not get approved for. Apparently the standards for a construction loan were much more strict than the mortgage loan. We didn't shop around for a construction loan, we just continued to look at pre-built homes as we knew we were approved for a mortgage. Now it's the end of 2013, we've been through the ringer ... one failed short-sale purchase (our fault, we got impatient) and currently under contract on a home that we were just informed has a bad roof.
Wow, after all that, and back to square 1? What a pain. We are so close to the end of the year, so close, why don't you see if you can find turn-key new construction delivering after tax time 2013 and buy what you want? It sounds like you are "settling" for something and not getting what you want, which is a recipe for wasted money and time. Right now, six (more) months patience and this past year will be forgotten as a bad memory.
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