Mortgage as self-employed but also W2 income

Anonymous · ‎04-24-2016

I own a business (LLC taxed as S-corp) but I pay myself as an W2 employee, so I have 2 sources of income listed on my personal tax return (W2 and K-1)

I'm trying to figure out the best way of paying myself to get a mortgage.

Here are the numbers from the last 2 years:

2014: Business income 150k, W2 income 50k

2015: Business income 170k, W2 income 80k

I'm assuming that they will take the average of both years to get my average income, so they would consider my income as 225k. Is this correct?

I've heard that self employed folks have a nightmare getting approved and there's also all kinds of last minute cancellations that occur at closing due to underwriting issues, so is it better to have most of my income listed under the K-1 business return or on the W2 side? Does W2 income look more "stable" to the underwriter?

Also, another question I have is getting the underwriter to look at my file BEFORE I make an offer on a house, that way I can have higher confidence that I won't get a preapproval only to have hte rug yanked out from under me at closing. Can I pay a fee or something and get the mortgage underwriter to give me an up or down vote on how much I can borrow before the closing stage? I know they have to check everything again at closing, but I want them to do a very thorough evaluation up front instead of just a passing glance.

Anonymous · ‎04-25-2016

following this. thanks for asking this.

Anonymous · ‎04-25-2016

It's good that you pay yourself W2. That is easier income to use. As far as the business income goes it shouldn't be to big of an issue. Just have to figure out what income can be used. Basically whenever I do a pre-approval for self employed I get your last 2 years tax returns and do an income assesment and go as conservative as possible. I will then run it through the automated underwriting system and make sure we get the approve eligbile. Our underwriter is in our office so if we have any questions on what income will be counted then we just send it over to her and she figures it out. As long as your credit and DTI is good then I wouldn't see any problem with you receiving an approval.

ezdriver · ‎04-25-2016

@Anonymous wrote:
I own a business (LLC taxed as S-corp) but I pay myself as an W2 employee, so I have 2 sources of income listed on my personal tax return (W2 and K-1)

I'm trying to figure out the best way of paying myself to get a mortgage.

Here are the numbers from the last 2 years:

2014: Business income 150k, W2 income 50k
2015: Business income 170k, W2 income 80k

I'm assuming that they will take the average of both years to get my average income, so they would consider my income as 225k. Is this correct?

I've heard that self employed folks have a nightmare getting approved and there's also all kinds of last minute cancellations that occur at closing due to underwriting issues, so is it better to have most of my income listed under the K-1 business return or on the W2 side? Does W2 income look more "stable" to the underwriter?

Also, another question I have is getting the underwriter to look at my file BEFORE I make an offer on a house, that way I can have higher confidence that I won't get a preapproval only to have hte rug yanked out from under me at closing. Can I pay a fee or something and get the mortgage underwriter to give me an up or down vote on how much I can borrow before the closing stage? I know they have to check everything again at closing, but I want them to do a very thorough evaluation up front instead of just a passing glance.

As a self-employed person [even paying yourself on W2], what matters to the underwriter is the average of your most recent two years of annual taxable income.

Most times self-employed people have difficulty qualifying for mortgages because they look at their GROSS INCOME and forget that does not matter to the underwriter. What matters is the taxable income shown on tax returns. I see people earning $100,000+ gross income but showing $25k taxable income on their tax returns ... then wondering why they cannot qualify for a mortgage. Minimizing tax liability as an objetive requires an approach that is completely counter to the that required for mortgage qualification. If self-employed folks are in the former position, its best to take two to three years and change the approach to maximize the probability of qualifying for a mortgage.

Anonymous · ‎04-25-2016

@ezdriver wrote:
@Anonymous wrote:
I own a business (LLC taxed as S-corp) but I pay myself as an W2 employee, so I have 2 sources of income listed on my personal tax return (W2 and K-1)

I'm trying to figure out the best way of paying myself to get a mortgage.

Here are the numbers from the last 2 years:

2014: Business income 150k, W2 income 50k
2015: Business income 170k, W2 income 80k

I'm assuming that they will take the average of both years to get my average income, so they would consider my income as 225k. Is this correct?

I've heard that self employed folks have a nightmare getting approved and there's also all kinds of last minute cancellations that occur at closing due to underwriting issues, so is it better to have most of my income listed under the K-1 business return or on the W2 side? Does W2 income look more "stable" to the underwriter?

Also, another question I have is getting the underwriter to look at my file BEFORE I make an offer on a house, that way I can have higher confidence that I won't get a preapproval only to have hte rug yanked out from under me at closing. Can I pay a fee or something and get the mortgage underwriter to give me an up or down vote on how much I can borrow before the closing stage? I know they have to check everything again at closing, but I want them to do a very thorough evaluation up front instead of just a passing glance.

As a self-employed person [even paying yourself on W2], what matters to the underwriter is the average of your most recent two years of annual taxable income.

Most times self-employed people have difficulty qualifying for mortgages because they look at their GROSS INCOME and forget that does not matter to the underwriter. What matters is the taxable income shown on tax returns. I see people earning $100,000+ gross income but showing $25k taxable income on their tax returns ... then wondering why they cannot qualify for a mortgage. Minimizing tax liability as an objetive requires an approach that is completely counter to the that required for mortgage qualification. If self-employed folks are in the former position, its best to take two to three years and change the approach to maximize the probability of qualifying for a mortgage.

Great Tips. I myself started my business late last year towards the end of the year and only made 1900$ of taxable income for 2015, now in 2016 I am on track with 35,000$ so far. I want a condo of 110k-150k depending on the condition. I was a stay at home mom before that for 9 years. I wonder if in my case I need to wait to have my second tax return or if when I go for a mortgage mid year they can average out the 1900$ on my tax return of 2015 with the year to date of 35,000$ in order to qualify me?