Your choices if you’re self employed and you don’t show enough income for a mortgage

Mortgage companies use your net income from your tax returns to qualify you. The excuse my accountant won’t let me do that, or I have to pay more taxes is incongruent with mortgage loans. Here is what you need to know…

Part of being an entrepreneur is also bearing the costs that come with it and those costs include paying your fair share of taxes. As a result, let’s say in 2019 you showed very little income, let’s say you had big revenue, but because you don’t want to pay a big tax burden you chose to write everything off, as a result, your net income for 2019 is extremely low let’s just save for example purposes it’s $40k.

Let’s say you want to buy a $500k house. Well, $3k a month of income is not going to offset a $500k purchase price resulting in extra cash down or stomaching the courage to ask for mom and dad or a friend or someone in your life to cosign on your loan.

The answer to qualifying is getting a CO signer as inconvenient as that might be if cash is not an option. There is no magic loophole and there is no special treatment because you’re self-employed. If you’ve been filing self-employed for the most recent last five years you may only need to provide the most recent year’s income tax return. This could be a golden goose if your last return was positive when the returns in years past were lower.

Getting a stated income loan, trying to find a bank statement loan, are trying to find a program supportive of a unique tax situation will be very pricey vs the loan actually closing escrow. When push comes to shove, most likely you would fair better getting a traditional fixed-rate mortgage and paying the taxes owed or putting more cash down, than you would be getting unique financing. Here is why you will pay for it one way or another. You will pay more interest on the unique loan than you would on the traditional one while saving on taxes or you pay more in taxes and less interest on a mortgage rate and payment by properly reporting the income to IRS- either way you will pay for it.

If know you are going to pay for it regardless, you might as well get a low rate traditional mortgage supportive creating the lowest fixed monthly liability as that will give you the foundation to be more nimble with your income in the years to come.

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