Self employed income calculations
These days, there are no such mortgage loan programs like no doc or stated income like we had several years ago. A mortgage loan borrower needs income documentation in order to qualify for a residential mortgage loan. This can be a problem for business owners and self employed mortgage loan borrowers when it comes to qualifying for self employed income calculations in determining their gross monthly income.
Self employed income calculations is done by two years tax returns
Many self employed income calculations is determined by tax returns. We normally average the past two years of adjusted gross income when determining self employed income calculation. Most times than not, self employed mortgage loan borrowers write off as much as legally possible in order to declare the least income possible. This technique is great and advantageous to the self employed mortgage loan borrower but is a major hurdle and problem when it comes to trying to get a mortgage loan. There are some solutions to help self employed and business mortgage borrowers in obtaining a mortgage loan.
Loan Officers Specializing in Self Employed Income Calculations
I strongly recommend that a self employed or business owner who is trying to get a residential mortgage loan to seek the advise of a mortgage banker or mortgage broker specializing in helping self employed borrowers and who have extensive knowledge in self employed income calculations instead of going to their local banker. Every lender have different lending underwriting guidelines when it comes in self employed income calculation. I have a few lenders that can use part of the mortgage loan borrower’s assets in self employed income calculation. For example, say you have $300,000 in cash and/or stocks and you declare $40,000 on your self employed income taxes as your gross income. The lender will consider taking 4% of your liquidable assets of $300,000 and use that towards your annual income. So on this case, $300,000 x 4% yields $12,000 so your total income that the lender will use to underwrite your mortgage loan will be $40,000 plus $12,000 for a total of $52,000.
If you have a retirement fund, IRA, and/or 401k, the amount that the lender will use is 60% of the market value to calculate your liquidable assets. For example, say you have $200,000 in retirement funds. The lender will take 60% of the $200,000 which yields $120,000 to use to calculate your liquidable assets. They will then take 4% of the $120,000 to calculate your additional income which is $120,000 x 4% which yields $4,800. The mortgage loan borrower can use the $4,800 as additional income on top of the $40,000 reported primary income on your income taxes.
Adjusted Gross Income and Adding Depreciation to Maximize Self Employed Income
Other items that a lender can use in self employed income calculations is rolling the depreciation the borrower has listed on their Schedule C of their income tax returns.
If you are self employed or a business owner in Illinois or Florida and need a residential mortgage loan, please contact me at 262-716-8151 or visit me at www.gustancho.com .
Gustan Cho NMLS ID 873293