Mortgage Income Qualification: Self Employed Mortgage Borrowers
If a mortgage loan borrower works as a salaried employee or hourly employee, they just need to provide their W-2s for the past two years and their most recent pay check stub. The mortgage lender will also ask you to provide to provide your prior two years tax returns to see what type of expenses you wrote off where it might possibly reduce your monthly gross income. However, mortgage income qualification calculations are more tricky when it comes to self employed mortgage borrowers. Many self employed mortgage borrowers make tons of income but if they write off a lot of money as expenses, their net adjusted gross income will affect the minimum income required for them to qualify for a residential mortgage loan.
How Underwriters Qualify Self Employed Mortgage Borrowers
There are certain documents that self employed mortgage borrowers need to provide their mortgage lenders in order to see the income they can use to qualify for their mortgage loan. The following documents will most likely be provided to your mortgage lender in order for them to calculate income for self employed mortgage borrowers.
1. Two years tax returns for both your business and your personal returns.
2. Schedule C will be analyzed. Schedule C is the section where you provide your profit and loss from your business. Schedule C are normally for a business where you are the sole owner of your business, also known as sole proprietorship.
3. Schedule E will be analyzed. Schedule E of your tax returns are used for real estate holdings, real estate real estate income, royalty income, partnership income, S corporations, estates, Treal Estate Mortgage Investment Conduit, and real estate investment trusts.
4. 1120S if you have it on your tax returns. Form 1120S is for S Corp report of the profit and loss of your business.
5. K-1 forms need to be provided if it applies to you. K-1 forms reveal the percentage of your profit and loss related to your share of the business.
6. Profit and loss statements need to be provided. A profit and loss statement is an outline and summary of your business’s annual income and expenses as well as profit and losses.
Amending Tax Returns For Self Employed Mortgage Borrowers
Many self employed mortgage borrowers ask me if they can amend their tax returns so they can change their tax writeoffs so they can declare more income in order to qualify for a mortgage loan. It is perfectly legal to amend your tax returns, however, you need to wait a minimum of six months after you amend your tax returns in order for the mortgage lender to be able to use your amended tax returns to qualify for a mortgage loan. On the flip side, if you declare tons of income and little expenses for mortgage qualification purposes and amend your tax returns after you close on your mortgage loan, you are stepping into a gray area. If you amend your tax returns right after you have closed on your mortgage loan and had intent in inflating your income just for mortgage qualification purposes, then it is illegal and can be classified as mortgage fraud. However, if you did not have intent on defrauding or fudging your income but realized that you forgot to deduct unexpected expenses after you filed your tax returns, then you should be alright.