Applying for Mortgage when self employed...?
I was pre-approved for a mortgage and have found a house that I like, but I am worried about the financing actually going through. I am self employed. I have been for almost 2 years now. I claim my income from my business for taxes, but since December my income has increased by about double, so I used this "new" monthly income on my pre-qualification application. I am worried about being able to prove that this is how much I make though, because on my taxes from 2011 and 2010 I could only claim a significantly lower amount of money. I do have bank receipts and monthly statements showing that I have made deposits each month matching the amount of income that is on my prequalification application. Will this be enough proof of income for a home loan?
Also, if this matters any, my credit score is in the mid 700's
a big reason for my income increasing was that I finished my degree. Which is something that would cause a permanent increase in my pay and income.
- JimLv 48 years agoFavorite Answer
They are going to average your last 2 years of income. Keep in mind that they can add depreciation back into your income.
So take your (2010 net income + depreciation) + (2011 income + depreciation)/2 = your actual income.
You may be prequalified based on the income that you list, but it won't matter, once an underwriter reviews it they will use the above method to calculate your income for the final approval.
- BobLv 68 years ago
I can think of non-self employed positions that would increase with a degree but I can't think of a scenario in which a degree will make a difference to an underwriter on a self employed borrower. They will average your income over the two years of self employment. Even if your financials indicate a higher income for YTD 2012 that can only be used to support the income that you averaged for the previous two years. This does not mean you will be denied. Even in the current market I have seen the automated underwriting services that nearly all lenders use approve loans with debt to income ratios approaching 60%, especially with a strong credit score. I have a borrower with a 56% ratio right now with a 630 score that has been approved. The link below confirms loans are not subject to debt to income ratio limits if approved by automated underwriting.Source(s): Licensed Loan Officer in Ohio
- MiltonLv 78 years ago
Show your 1040s and your deposits recently. You are allowed to increase your income! But for purposes of a mortgage, they are more interested in long term income than a quick uptick. What goes up can go down. So, they will make the decision on your previous 2 years income statements but may be impressed that your business is showing an upward trend.
- 8 years ago
The reserve bank is managing your available credit you recieve, backed by your labor. The 'bank' is not giving a loan because this is not a loan/money system, it is a credit/debt system.
Your credit is used to purchase the house and your labor is used to pay it off. The bank gives nothing of value. The value comes from you. By the bank switching the words 'credit/debt' with 'loan/money', they can convince you the opposite of what is really occuring. You actually giev the 'bank' a loan with your available credit that they sell on the stock market. (Big difference when hearing your credit being sold rather than a loan). You give them monthly installments (deposits) thinking you owe them interest on a loan.
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- Go with the flowLv 78 years ago
You should be worried.
IF you had a question about salary, you should have asked. They are going to go through all this work now, and then tell you something "we can only use an average of your last 2 years of income".
- LandlordLv 78 years ago
They will be going by your average income of 2010 and 2011, not what you are showing now. Since you have not deducted expenses this is not your real income yet.