If you are self-employed and looking for a mortgage, it is very difficult to know how much income you can use to qualify. That’s why I wanted to supply a self-employed mortgage calculator. This is what the underwriter uses to calculate income from the most recent 2 years of Schedule C’s from your tax returns. If you are an S Corporation there is a different calculator. Contact me for that.
One of the benefits of being self-employed is that many things can be write-offs that greatly reduce your mortgage obligations. Unfortunately, that can really lower the amount of mortgage you can qualify for when you go to buy a house. But, there are certain items that are write-offs and lower your tax obligation, but for mortgage qualification can be added back. For Schedule C borrowers those are things like:
• Business use of home
• Mileage for business purposes
Some of the work I do with clients is what I call “mortgage planning”. We may find after doing the calculations on your tax returns that you’ve been a little too heavy on the write-offs. You may find that next year you can structure your expenses to be more favorable for mortgage qualification, but not overly penalize you on your tax bill. If you want to take a shot at doing the calculations yourself try this calculator. This should not be construed as tax advice or a final figure, but it will give you a very good idea of where you stand. One important thing to keep in mind is that if your income declines from one year to the most recent year, you will only use the most recent year’s income for qualification.
After doing the calculations from the most recent 2 years of business tax returns we may find that you are not claiming enough taxable income to qualify for the home you really want to buy. We may want to look at a Bank Statement Mortgage. A Bank Statement Mortgage does not use any tax documentation. We would use your last 12 or 24 months of bank statements and determine your maximum mortgage amount, debt to income ratio, etc. from the cash flow of your business. Again, contact me for more information on that.