If you own your own business, you understand how difficult it can be to obtain a home loan. Many business owners write off a lot of expenses that lower their taxable income. While this is an acceptable tax strategy that saves money, it also makes it difficult to qualify for a home mortgage.
When an underwriter makes a determination of whether or not you can financially qualify for a home loan they look at several factors:
• What is your taxable income? For a W-2 employee,the answer is easy and written on your year-end W-2. For a business owner,this could come from your net profit or from a W-2 that you issue yourself.
Advertisement
• Losses – As a business owner,the underwriter will often look at your business tax return to determine if you are running a loss. Depending on the type of business you own, the loss could be deducted from your total income.
• Schedule E – If you have rental properties the income (or loss) on your Schedule E will be either added or deducted from your total income.
As a business owner when you write off expenses, keep in mind that it can lower your income and make it harder to qualify for a home loan. For example, if you write off your car payment that money that is benefiting your family but it cannot then be counted as part of your income.
An experienced mortgage lender may have a solution. Business owners can use their bank statements to qualify for a home loan instead of using their tax returns. Bank statements can be more accurate than tax returns because they show the total amount of money coming into your account, which can be a better representation of how much money you make. The underwriter will typically want to see twenty four months of bank statements.
How Stated Income Loans Work
• The underwriter will add up the total deposits over the past twenty four months.
• This number is divided by twenty-four to get your monthly average.
• That number is used as your monthly income when calculating your debt to income ratios.
In order to get started contact your mortgage banker to further discuss the program and to find out if you qualify. Gather your bank statements and bring them with you to a meeting. An experienced mortgage lender can review your statements, discuss you the type of loan you are looking for, and a make a recommendation as to whether or not this new loan program will work for you.
As a business owner, this is the perfect time to purchase a home or refinance. These types of alternative mortgage loan programs have been unavailable in the past several years. There is no guarantee how much longer they will be offered so call today to find out if you qualify. Keep in mind that if you have a current FHA loan, you can refinance without needing to prove your income so this will not be an issue.
