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I've recently been dealing with a mortgage lender who doesn't like that my last two years tax returns are mostly capital gains and dislikes some other things about my returns that I have never encountered before.
I was in the market for a small vacation home. At the recommendation of my realotr I contacted a mortage broker that she knows to apply for a loan of about $150K, $200K purchase price with $50K down.
I'm self-employed as a builder, developer, RE investor. Owned my business for 15 years. No bankruptcies, lawsuits, judgements, liens, or anything like that - ever. Very little debt, house paid for, high net worth of real estate paid off and enough cash in the bank to more than pay cash to purchase the property in question. FICO score in the 700's. Last two years tac returns are way more than enough to qualify for this loan.
Sent the broker my tax returns and he immediately started picing it apart. First didn't like the way I file my returns. My business is a single member LLC and the IRS want me to NOT file two separate returns but instead wants everything in my business to flow through my personal return. That's the way the IRS wants it so that's how I do it. They didn't like that. The other thing he didn't like is that the majority of my income was in the form of capital gains from buying land, holding it and then splitting it and selling it in smaller parcels. Sometimes I buy land and develop it, which is reported as standard income. Sometimes I buy land and flip it, which is reported as capital gains. He wanted a couple more years tax returns to show that I routinely sell land so that I have capital gains. I told him that I don't alweays do it like that , that I do whatever is best for my business at the time. They couldn't wrap their head around that. They're saying that unless I can show capital gains for multiple years that they're not going to count that income and therefore I have no ability to re-pay and that everyting is different now from the last time I got a mortgage loan.
This was all mew to me, Obviously I get loans from banks for business purposes, buy land, etc, but not long term mortgages. My question is, am I going to run into this no matter where I go because of being self-employed and very fluid with how I run my business?
Find another mortgage broker.
+1. Your broker is an idiot. Find another one.
Why is a mortgage broker analyzing tax returns anyway? Most can barely read a rate sheet. Dump that broker and try your local small bank or credit union. Let us know how it goes.
By the way, a mortgage broker cannot legally issue an approval or directly fund a loan...he can only reach out to lenders who can underwrite, approve and fund the loan.
Capital gains income requires 2 years of tax returns showing it. You also need to own additional property or assets that can be sold if extra income is needed to make future mortgage loan payments. The income is then averaged over the past 2 years of tax returns. So if you had $10k in 2013 & $150k in 2014, then the average would be $80k/year. If it's declining from 2013 -> 2014 then only 2014's capital gains amount would be used. The "regular income" I suspect is what you just report on the business return, the net income amount is also averaged over a 2 year period, declining income guidelines would also apply if that is your situation.