I'm self-employed and like many small business owners that I have gotten to know over the years many of us have tax returns that often do not show a lot of income because of all the tax write offs. This is especially true when you work from home. Is this taken into account when getting a mortgage or do mortgage companies just look at a specific figure on the tax return?
Answer
You are correct about write offs and small business owners, especially ones who work at home. This is a common problem in the mortgage industry with getting mortgage financing for small business owners who write things off. Until the mortgage crash of 2007 there were products designed to handle this situation. They were called stated income loans, and many of these programs allowed a home purchase with very little money out of pocket.
No More Stated Income Loans For Now
Times have changed however. With the tremendous abuse of these and many other mortgage loan programs over the past few years, most if not all of them have been discontinued. If they haven’t been discontinued they have been scaled back considerably to where now require 25-30% down payment and are pretty expensive to get.
To get an estimate of your income you would take your AGI - Adjusted Gross Income, and add back in any depreciation and any use of your home that you wrote off as income. These are two of the places where an underwriter will look for income. If you have tax returns for your business (es) you may be able to pull some income from them too depending on how you have them structured etc.
If you are married and your spouse works and gets a W2, then their income is handled like it normally would by dividing the annual income by 12 months to give you the monthly income for them. You'll want to divide your annual income by 12 for the self employed spouse too. Then add these two figures together to get your combined monthly income. This should at least give you a rough idea of what your income will be. Learn more about how to calculate monthly income.
Get Pre Qualified First Then Find A Home
Your best bet in this case is to get your tax returns into a loan officer and have them get looked at by an underwriter to see what income you qualify with for a mortgage. Once you know this figure you can then go shopping for a home with confidence. In any real estate market it always best to get pre qualified first – then shop for a home.
If stated income programs don't come back anytime soon, there will a lot of self employed folks who show little on their tax returns who will be in trouble when they want to buy a home, or refinance. If this is the case for you, you may want to visit with your tax advisor about your situation to perhaps show more income so that you can qualify in the future.
I hope this has been of use and help for you.
