Self Employed - Which Bank account will they want to see?

[doublespaces]

I get paid through my LLC which banks at a local credit union, obviously my name is on the account. When I go in for underwriting, which bank will they be looking at? I have a join account with my Fiance, a personal Bof A, Wells Fargo, Chase and my local FCU business account. I keep a large portion of my money in my fcu and thats where all my payments are deposited, will this be ok? All my transfers to my personal accounts are generally not consistent and are typically large cash deposits.

Also, when filing my taxes as 1099, how long will it take for the IRS to get everything in their records for the bank to be able to pull? I'm wanting to buy a home at the beginning of the year after my credit improves and I'll have a good income this year to reflect as well. I took a large portion of time off of work in 2010 so my 24 month history doesn't look good(only about 40k average) but if we include 2011, it will be around 90 for this year. Hopefully they don't take my increase in income the wrong way and exclude it.

[ShanetheMortgageMan]

You can use all of the accounts.  When using business assets to qualify, some lenders will only take the lower of the final balance within the past 2-3 months of your business statements... because they figure that some months it's higher than others and they wouldn't want you to cripple your company's finances just to purchase a home (because there could go your income).

IRS typically takes 6-8 weeks to process tax returns... depending on how complicated your returns are you may have to wait until the 2011 tax forms are released (often in late January/early February) before you can file.

An increase from $40k to $90k is pretty big, and in order to include the $90k you'd need a good documented reason, like evidence showing that business operations/expenses/etc. ceased for a period of time and not just that business was slow.

[doublespaces]

I have a question, if I filed my 2011 taxes half way through the year, will they use that? I'm told that if I buy a home before 2011 is over, in order to include 2011 income they would need to see it on paper somewhere. I think getting a tax return would pretty much be the only way, right? Also, he said (wells fargo) that they didn't actually get the returns from the IRS, they would just try to match up all the personal information... I'm not sure what he's talking about, matching things up, but this is what he said. Is that true? I don't want to find myself in a spot where I can't get a loan because the IRS hasn't processed my tax returns internally.

Also, you say that 40-90k is a big increase. in 2009 I grossed over 90k and filed just over 40k personal gross. in 2010 I am stuck with about 35k due to the time off work and in 2011 I have grossed 46k so far this year with no reason to believe anything will change. The difference from 2009 and 2011 is that I stopped working for myself so much and am working literally at the work place and will have much less overhead since a large portion of the business operational expenses are paid for by the company now. Just looking for input, thanks!

[ShanetheMortgageMan]

You can't use 2011's income for self-employed income qualifying until your 2011 tax returns are filed, if it is late in 2011 the underwriter may require a CPA review of your books to confirm that your 2011 income is on track to be the same as 2010's, but 2011's income won't be included in the amount that the underwriter uses to qualify, it'd just be used to support the income from 2009 & 2010.

Yes, one of the steps in the loan process is for the lender to process Form 4506t - http://www.irs.gov/pub/irs-pdf/f4506t.pdf.  It allows a requestor to get transcripts of a tax return that has been processed by the IRS.  That is what usually takes 6-8 weeks in order for it to show up.

The explanation and documentation you can come up with to support the reason for the increased net earnings will be examined and taken into consideration, that is what it ultimately comes down to.  You work for your own LLC, so your personal expenses decreasing because the LLC's are increasing will offset each other, and so if that is the basis of your increased earnings for qualification purposes then you may have to re-evaluate things.  Corporate & personal tax returns are reviewed, and corporate losses are considered in the income calculation.

[doublespaces]

When I said that I literally work at the work place, the 'work place' is not my LLC, it is the workplace of the company that contracts my LLC. It is their corporate losses not my own. In essence, I won't be claiming any losses for 2011, only some of the usual deductions.

EDIT: Also, would it be better to lump my money into one larger sum in a checking account instead of having it spread all over? Savings account better?

[ShanetheMortgageMan]

I see, the wording was a bit confusing.  Quarterly filed returns aren't accepted by any of the big name investors that I am aware of, however that's not to say there isn't a bank out there that would.

For the savings it doesn't matter per se, however the more accounts you have it in the more bank statements you need to provide, more explanations for  deposits/transfers could be inquired on, etc.

[doublespaces]

I talked to someone at Wells and they said they have done it before and would attempt to do it again by having a P&L statement to show income over the last 12 months. Think this might fly?

[ShanetheMortgageMan]

An audited P&L statement by a CPA perhaps - audited usually costs a huge chunk of change though as an audit is actually going through all of your books + records (it's like a mortgage underwrite but for your business income only), depending on the complexity it could run from a few hundred dollars to a few thousand.  A certified P&L statement by a CPA is them reviewing your books, runs a few hundred dollars.  If they were talking about you just creating your own P&L statement then I don't think that will work.  P&L statements are often used later in the calendar year to confirm that YTD net profit hasn't declined from the prior year, or if the underwriter is trying to establish an income trend (such as an increasing one), but not to come up with qualifying income.  If they can get your file in front of an underwriter's nose then you really have nothing to lose other than the money for the P&L.

[doublespaces]

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@ShanetheMortgageMan wrote:

An audited P&L statement by a CPA perhaps - audited usually costs a huge chunk of change though as an audit is actually going through all of your books + records (it's like a mortgage underwrite but for your business income only), depending on the complexity it could run from a few hundred dollars to a few thousand.  A certified P&L statement by a CPA is them reviewing your books, runs a few hundred dollars.  If they were talking about you just creating your own P&L statement then I don't think that will work.  P&L statements are often used later in the calendar year to confirm that YTD net profit hasn't declined from the prior year, or if the underwriter is trying to establish an income trend (such as an increasing one), but not to come up with qualifying income.  If they can get your file in front of an underwriter's nose then you really have nothing to lose other than the money for the P&L.

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To come back to this, I feel like paying you(haha) They said they wouldn't accept a P&L from me, it would have to be by a certified CPA.. And my 'books' are Extremely simple. I simply get paid on a 1099 basis, no expenses that I wish to claim. I go to work just like a regular w2 employee. Now, this wasn't the case in 2009 when I grossed 100k but adjusted only 40k.

I will have a trend set from 2010 to 2011. 2010 is filed with no deductions made at all.

Have you heard of anyone getting their income verified for qualification this way?

[ShanetheMortgageMan]

Yeah back in 2008 and prior occasionally were able to use a CPA prepared P&L to use as income on some non-conforming loan programs, but during the "credit crunch" it has only been used to substanitate trends from what I've seen.  Residential credit has become easier, so it wouldn't be out of the realm of possibility, but I still think the probability is on the low end.