Expenses are expenses, whether from depreciation or simple write-off. Somewhere along the line you spent that money regardless. Perhaps, when it comes down to it--after you buy your groceries, pay rent, eat at fancy restauarants (all write-offs for some self-employed people) you don't actually make enough to qualify for a mortgage. Sure a few years ago, you could get a stated income loan, but that's before all the people who couldn't actually afford a mortgage went out and got loans for million dollar tract homes in the middle of nowhere because the big bad broker told them to.
I am self-employed and managed to get a FHA mortgage during 2008 and am currently refinancing (although, it's a streamline FHA.) My median credit score at the time was 697, which was just under the 700 needed for a conventional non-conforming jumbo loan. After a $15 medical collection was finally removed a month after closing (I asked for two years), my median credit score went to 720.I never intended on using a stated or a no-doc loan, and I didn't.
When I switched to the FHA product, I put 5% down instead of 10%, and used the money to remodel my bathroom.
I had several years of steady income from self-employment documented by 1099's and tax returns. I also had to show my current books and a couple of long-term contracts I hold, amoung other proofs of income.
It's offensive to say that self-employed people shouldn't get loans because they don't have w-2s. The amount of paperwork required for a self-employed person to get a loan is huge compared to a W-2'd applicant. What it comes down to is that if you make enough money, there is really should be no amount of deductibles that should wipe your income out completely. If you make really good money being self-employed and deduct everything under the sun, you can still walk away with an adjusted income that qualifies you for a house. Luckily, my mortgage broker did not have the same narrow-minded attitude I find all over the internet about self-employed people.
