FHA - Non borrowing spouse debt & income

[Draco007]

Hi,

I am a stay at home self employed mom with a 7 year old hobby/business that brings in a little extra money each month to cover bills and medical expenses of our special needs kids.  My net is actually a small loss each year after I take all of the deductions like medical, depreciation, home office etc.

My husband has the "real job" that is easy to verify.  His scores are higher than mine but I'm not too far behind (600, 621, ??? (last checked was 635 on Experian).  We decided to apply with only using his numbers, however I just found out that since we are in California, my debt will also need to be included in his DTI ratio.   I have a high limit credit card with the business debts on it.  The minimum is $450 each month.  My husband has only a car payment and a couple of credit cards with less than 10% UTL.

My question is, since it looks like I will be including my business debt (which is personal since it's on my credit reports), can I include any business income as well to help offset the DTI ratio?  Correct me if I am wrong, but I read somewhere where I can add back deductions like the interest on the business credit card, health insurance, depreciation, business miles etc.  If I was able to do this, I would actually have positive income instead of what is shown on my tax return.

[Anonymous]

No, you can not subtract out your deductions.  They will look at claimed income on tax forms averaged over 2 years to determine your income level.  there may be a few types of things that can be backed out (not aware of this by any measn though) but generally (as Dallas would say) you can;t have your cake and eat it too.   Income is not revenue, so cash flow is not what they count as income, only after expenses.   

[Draco007]

So.... for FHA purposes I need to list my debt but no income right?  That doesn't seem fair at all since the business pays for the debt that is being factored into how much house we will be allowed to purchase.  Would I also have to include a negative income amount?  

I don't exactly see it as a having your cake and eating too situation.  My husbands gross income is taken before any of his deductions are considered.  If were were using his AGI, it would be a lot lower as would everyone elses.

[Anonymous]

Self employed icome is totally different than pulling income from w-2.  Deductions out of your payroll are not the same as writing off deductions from your taxes in most cases.  There may be a few points where you can roll them back (health care might be one) but the bottom line is that according to the IRS you are running a business that is not profitable so since there is no "profit" it can not be used as income.  I myself fell into this same problem and I agree it sucks.  Being arguementative doesn't ehlp that.  The point is that as a married couple in a community property state, even thought you may have separate debts, in a divorce the court can order one partner to assume the others debts.  So, FHA either want both parties on the loan, or they want all debts factored into it.  I am surprised they don't so it in all states though (not just community property)

The having your cake and eating it to part is that you can not deduct businees expenses and then expect that cashflow to be counted as income.  It is not.  It is busines revenue.  that is why people should pay the extra money and set up corporations when necessary as it deflects some of the liability off of their personal credit.  This is obviously not always feasible though. Again the community property state, non borrowing spouse stuff is a pain, but it is there for a reason.

[Draco007]

Being arguementative doesn't ehlp that.

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@Anonymous wrote:

Being arguementative doesn't help that. 

The having your cake and eating it to part is that you can not deduct businees expenses and then expect that cashflow to be counted as income.  It is not.  It is busines revenue. 

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I didn't think I was being argumentative.  But whatever, I'm harding in the mood for this.

I know the real business expenses cannot be added back.  There's revenue, cost of goods sold, etc.  I'm not talking those deductions at all.  I'm talking about the other types of deduction that I listed out earlier.

I will research this more.  Thank you for your time.

[WannaHouse]

Your SE income is your total on the scheduel C and you can add back depreciation deductions.