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I just submitted a pre-qualification form to my local bank, but after doing extensive reading and research online I'm scared that they'll either outright reject it or come back with a very low amount. The problem is that I'm self employed, and my tax return verifiable income is not very high. My father (and business partner) is co-signing with me, but his verifiable income, while more than mine (we are in a 60/40 partnership) is still not very high. And then to top it off, my name is on a couple vehicle loans as co-signer, both vehicles are used by the business and paid for by the business, but because it's a partnership and not a corporation, the loans show up as a personal debt....AND my dad's (other cosigner). This means that to the bank, our monthly installment debts are effectively double what it really is. I'm trying to prepare myself for the disappointment that is inevitably going to happen with this, but I need to figure out where to go from here. All the advice I've read says to deduct less on your income tax, which we can do, stinks because that means I'm going to be paying much more taxes (less to save for a downpayment!). As a 26 y/o single male with no dependents, I'm already paying a lot of taxes. The other idea I had is to re-finance the vehicles and put them one each in myself and my dad's name, so the payments don't show up as duplicates on our credit reports. What else to do? Maybe I'll be surprised and they'll pre-qualify me for a good amount, but it doesn't look likely from what I've learned. I really didn't want to wait 2 more years before being able to make a purchase.
If you can prove that the company makes the payments on the trucks they won't be counted against your income. Will need to show 12 months of cancelled checks/statements showing that those payments come out of the business account.
If you are "already paying a lot of INCOME taxes" you may be fine.
I asked the banker that question when I dropped off the pre qual, she said that because both of us are legally obligated to make the payments (personally), it will be counted as personal debt. Maybe if we go into more detail they would say otherwise, I don't know.
Well I just got a call back from the bank, they flat out denied any amount just from the limited info I gave on a pre-qual. And to top it off, because I have excellent credit, they won't accept my dad as a co-signer. They said my income, with my debt (two vehicles, 0 credit card debt) disqualifies me from any amount.
I can only post in between phone calls and miss updates - while the banker could be right......don't stop on just their word. I can already tell you that you have received information that does not follow mainstream lending.
From the sound of things, I suspect your gut is correct. Just so you can run the numbers yourself - you say partnership, but is it Schedule C, 1065, 1120, or 1120 S? Chances are it's a 1065 the way you stressed partnership. The Reader's Digest version is, take your K1 earnings or W2 earnings and add back 40% (representing your share)of depreciate and depletion. Chances are that is the income you are working with........(And for dad, we would take his W2 or K1 and add 60% depletion and depreciation).
Can you document the PARTNERSHIP has paid those car loans? There is NO WAY you would be hit with 200% of the monthly payments. You must show that no money is flowing from your personal bank accounts, into the partnership's accounts. Can you do that for 1 year, show the partnership is generating enough income to pay the bills in your names? If that is the case, there's a good chance those debts will not be counted against you.
What will count as debts.......dad's housing payment and all debts the partnership is not paying and your debts that the partnership is not paying.
And finally, once you have your income and dad's (W2/K1 + 40/60% depreciation/depletion) how many times is it of your combined incomes........so say your income is 40K and Dad's is 60K (100K total) and you are looking for 400K, that would be 4x your income........I'm trying to get a feel if you are in the ballpark or have you already left the game without you spilling all your private info on a public website.
I suppose I'll try another bank, maybe a local credit union. Just feeling rather frustrated right now. Yes, it's a 1065 that we file. I've been with the business for 10 years, obviously for tax purposes we take as many deductions as possible. We've reinvested in the business heavily in the last few years to keep from paying out a lot in taxes, keeping just enough to live comfortably. And I'm pretty anonymous on here unless somebody really goes digging, so here's some more info: Gross income last year was $425,000, net $66,000 which was then split 60/40 dad/myself (leaves me with $26,...). I had no idea I would be running into this with a mortgage, or we would have done things much differently. I have no credit card debt, I live at home and my dad owns the house & property free and clear. Dad has a $300 personal vehicle payment and <$10,000 cc debt. The properties I'm looking at are $150k +/- 10k. I knew I would need more than just my provable income, but I thought the two of us together would be able to do it. I would have no trouble making payments, my FICO score is 799, but of course the bank won't take my word for it. And yes, partnership payment of the car loans in question is 100% provable.
I suppose I'll try another bank, maybe a local credit union. Just feeling rather frustrated right now. Yes, it's a 1065 that we file. I've been with the business for 10 years, obviously for tax purposes we take as many deductions as possible. We've reinvested in the business heavily in the last few years to keep from paying out a lot in taxes, keeping just enough to live comfortably. And I'm pretty anonymous on here unless somebody really goes digging, so here's some more info: Gross income last year was $425,000, net $66,000 which was then split 60/40 dad/myself (leaves me with $26,...). I had no idea I would be running into this with a mortgage, or we would have done things much differently. I have no credit card debt, I live at home and my dad owns the house & property free and clear. Dad has a $300 personal vehicle payment and <$10,000 cc debt. The properties I'm looking at are $150k +/- 10k. I knew I would need more than just my provable income, but I thought the two of us together would be able to do it. I would have no trouble making payments, my FICO score is 799, but of course the bank won't take my word for it. And yes, partnership payment of the car loans in question is 100% provable.
Do you write off any depreciation? If so, that can be added straight back to the bottom line.
Guessing your 'local bank' is not a secondary market mortgage lender. Do they sell mortgages to Fannie Mae/Freddie Mac or wholesale investors? It is a very common requirement that those truck payments aren't counted against your income if there is sufficient documentation that the business pays the bills. Doesn't matter if the loans are in your personal name.
You should probably skip the credit union too and head right to a local, experienced, reputable mortgage broker (not that there are not good credit union mortgage lenders out there).
Who would have thought that skirting taxes as a business owner (wow, that's unusual) would have negative consequences?
Not sure why you'd even bother posting in this thread, but you seem to be implying that I am "skirting taxes." I don't know why you would think that, we are doing nothing illegal and everything is done under the advice of a professional accountant. You evidently are not a small business owner. Even if you aren't, why would anyone voluntarily pay more taxes than necessary? Would you? Other than for the reason being discussed in this thread, obviously.
Do you write off any depreciation? If so, that can be added straight back to the bottom line.
Guessing your 'local bank' is not a secondary market mortgage lender. Do they sell mortgages to Fannie Mae/Freddie Mac or wholesale investors? It is a very common requirement that those truck payments aren't counted against your income if there is sufficient documentation that the business pays the bills. Doesn't matter if the loans are in your personal name.
You should probably skip the credit union too and head right to a local, experienced, reputable mortgage broker (not that there are not good credit union mortgage lenders out there).
Yes, I believe there is depreciation that we write off. I'm not sure regarding how my bank sells mortgages, I know when I picked up the pre-qualification form they showed me their in-house rates and their third party rates.
I didn't know about mortgage brokers. Is this something separate from a bank?
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