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Regular Contributor
Posts: 183
Registered: ‎12-27-2015
0

Will the bank ignore my self employment income?

I am trying to get a mortgage. I am self employed. In 2013-2016 I plowed all cash from my business back into my business to grow it, so the business shows no profit in those years. In 2017 those efforts paid off big-time with a 50% increase in sales and nice profits. The busienss is highly easonal in the 1st 5 months of the year. These profits are the source of the cash portion of my down payment ($25,000). The rest of my down payment is my equity in the land which is free and clear and conservatively worth $35,000 with all utilities and septic in place. I want to put a $110,000 home on the land. The bulder will cash flow the construction so no construction loan is needed, only permanent financing. I figure $150 a month in taxes and insurance after the improvement (figuring 150% of what it currently is). I have provable income of $3900 a month (pensions, Social Security and a Workers Compensation award I have been collecting for 30 years). My front-end and back-end ratios are 23% just on the provable income and LTV will be about 67%. Credit scores are in the 680's and rising.

 

Why is the bank giving me such a hard time about the lack of profits in my business 2013-2015 when I told them about it and told them to simply ignore it like it doesn't exist? I should be able to qualify without it, but it looks like my prudent actions in my business may torpedo the whole deal. BTW, my income this year is up 50% over last year and the deposits to my bank account show it.

FICO 8 Scores
2/14/17,EFX - 614, 4 Derogs,TU - 621, 6 Derogs, EXP - 603, 3 Derogs
3/7/17, EFX - 579, TU - 595, EXP - 588, same Derogs
4/8/2017 EFX - 683, TU - 791, EXP - 605 All Chargeoffs removed from TU
5/8/17 EFX 750, TU 796, EXP 625 All chargeoffs removed from EFX
5/15/17 EFX 743; TU 794; EXP 715
6/1/17 EFX 762; TU 794; EXP715
Community Leader
Super Contributor
Posts: 14,568
Registered: ‎11-11-2014
0

Re: Will the bank ignore my self employment income?

For self-employment, there are strict guidelines when it comes to getting a mortgage.  Although, you did the right thing putting the money back into the business to make it grow and showing no profit is a red flag to the lender.  I know it sounds harsh, but the lenders don't care about you putting money into the business to make it grow  but rather if the business has profits and you will be able to pay back the loan they are giving you.

 

Now that the above is out of the way, if you have provable income of $3,900 a month then use that alone and don't use the business as it only muddy things.  For the amount you are seeking, you should be able to find a lender to go with a $3,900 a month you have been getting.

Frequent Contributor
Posts: 287
Registered: ‎12-20-2016
0

Re: Will the bank ignore my self employment income?

He can't go Freddie Mac anymore since Freddie requires the business to be current for 5 years before accepting only one year for tax returns. He has to provide 2 years worth of tax returns. If his tax returns show that he is self-employed, lenders generally will ask for the business returns and ask what's the percentage of ownership in said business. This message is from my underwriter when I first started originating. We calculate on what we can prove and not potential income. In short: No, we will not ignore self employment income.

Mortgage Loan Officer in the Greater Chicago area and in 46 different states.
Regular Contributor
Posts: 183
Registered: ‎12-27-2015
0

Re: Will the bank ignore my self employment income?

[ Edited ]

kc0039 wrote:

He can't go Freddie Mac anymore since Freddie requires the business to be current for 5 years before accepting only one year for tax returns. He has to provide 2 years worth of tax returns. If his tax returns show that he is self-employed, lenders generally will ask for the business returns and ask what's the percentage of ownership in said business. This message is from my underwriter when I first started originating. We calculate on what we can prove and not potential income. In short: No, we will not ignore self employment income.


I think you misread my original post. I am specifically asking them to ignore my self employment income because it showed no profit 2013-2016. Ignore 2017, ignore it exists at all and only underwrite on my provable income, all of which is guaranteed. A person who is employed and gives a W-2 can be laid off or fired the next day. My pensions and Social Security continue as long as I live. The mortgage people are making a big thing about nothing and ignoring what can be proven. Sure, I have a business, sure it hasn't made a profit in 2013-2016 - so simply ignore it and go with what is proven to be guaranteed income and with provable cash in the bank. My top and bottom ratios are still 23%.

FICO 8 Scores
2/14/17,EFX - 614, 4 Derogs,TU - 621, 6 Derogs, EXP - 603, 3 Derogs
3/7/17, EFX - 579, TU - 595, EXP - 588, same Derogs
4/8/2017 EFX - 683, TU - 791, EXP - 605 All Chargeoffs removed from TU
5/8/17 EFX 750, TU 796, EXP 625 All chargeoffs removed from EFX
5/15/17 EFX 743; TU 794; EXP 715
6/1/17 EFX 762; TU 794; EXP715
Community Leader
Super Contributor
Posts: 14,568
Registered: ‎11-11-2014
0

Re: Will the bank ignore my self employment income?


Flyingifr wrote:

kc0039 wrote:

He can't go Freddie Mac anymore since Freddie requires the business to be current for 5 years before accepting only one year for tax returns. He has to provide 2 years worth of tax returns. If his tax returns show that he is self-employed, lenders generally will ask for the business returns and ask what's the percentage of ownership in said business. This message is from my underwriter when I first started originating. We calculate on what we can prove and not potential income. In short: No, we will not ignore self employment income.


I think you misread my original post. I am specifically asking them to ignore my self employment income because it showed no profit 2013-2016. Ignore 2017, ignore it exists at all and only underwrite on my provable income, all of which is guaranteed. A person who is employed and gives a W-2 can be laid off or fired the next day. My pensions and Social Security continue as long as I live. The mortgage people are making a big thing about nothing and ignoring what can be proven. Sure, I have a business, sure it hasn't made a profit in 2013-2016 - so simply ignore it and go with what is proven to be guaranteed income and with provable cash in the bank. My top and bottom ratios are still 23%.


Again, you should be able to find a lender who will use the $3,900 a month.  I am self- employed also and understand your frustration during the mortgage process.  In my, I just use my business tax returns as it showed profit.

 

How many lenders have you spoken to?  Have you looked into NFCU?  They make getting a mortgage easier than most for self-employed people.

Regular Contributor
Posts: 183
Registered: ‎12-27-2015
0

Re: Will the bank ignore my self employment income?

My Credit Union was the worst of the bunch. They fixated so much on the lack of profits that they simply didn't see the $15,000 of my cash in their vaults or the three years of activity in the account. I finally got tired of the "But the business shows no profits" followed by my "then ignore it" followed by their "But we can't ignore it" followed by them wanting me to explain every deposit I made into the account that was from the business. It seems that common sense took  along walk from the Credit Union and never returned. I walked out and told them to forget it.

FICO 8 Scores
2/14/17,EFX - 614, 4 Derogs,TU - 621, 6 Derogs, EXP - 603, 3 Derogs
3/7/17, EFX - 579, TU - 595, EXP - 588, same Derogs
4/8/2017 EFX - 683, TU - 791, EXP - 605 All Chargeoffs removed from TU
5/8/17 EFX 750, TU 796, EXP 625 All chargeoffs removed from EFX
5/15/17 EFX 743; TU 794; EXP 715
6/1/17 EFX 762; TU 794; EXP715
Frequent Contributor
Posts: 287
Registered: ‎12-20-2016
0

Re: Will the bank ignore my self employment income?

[ Edited ]

Flyingifr wrote:

kc0039 wrote:

He can't go Freddie Mac anymore since Freddie requires the business to be current for 5 years before accepting only one year for tax returns. He has to provide 2 years worth of tax returns. If his tax returns show that he is self-employed, lenders generally will ask for the business returns and ask what's the percentage of ownership in said business. This message is from my underwriter when I first started originating. We calculate on what we can prove and not potential income. In short: No, we will not ignore self employment income.


I think you misread my original post. I am specifically asking them to ignore my self employment income because it showed no profit 2013-2016. Ignore 2017, ignore it exists at all and only underwrite on my provable income, all of which is guaranteed. A person who is employed and gives a W-2 can be laid off or fired the next day. My pensions and Social Security continue as long as I live. The mortgage people are making a big thing about nothing and ignoring what can be proven. Sure, I have a business, sure it hasn't made a profit in 2013-2016 - so simply ignore it and go with what is proven to be guaranteed income and with provable cash in the bank. My top and bottom ratios are still 23%.


Most banks will still calculate the self-employment income or loss.  We will use pensions and social security and not use business income because everything will show up in your tax return. In fact, that's even more prudent and conservative as a lender. What I would do as a lender is calculate business income if it shows a loss. If it shows a loss, then we will subtract that from your income. That's the way most lenders would do it. I would put it in my story to the underwriter ONLY using pensions and social security income and here is the calculation for the business showing that there is no loss in the past two years so nothing affects his income currently.

Mortgage Loan Officer in the Greater Chicago area and in 46 different states.
Regular Contributor
Posts: 183
Registered: ‎12-27-2015
0

Re: Will the bank ignore my self employment income?

[ Edited ]

Same topic - new question:

 

I have my applications in with 3 or 4 potential lenders. How long should it take for them to get back to me with an answer? Do I measure it in days or weeks?

 

FICO 8 Scores
2/14/17,EFX - 614, 4 Derogs,TU - 621, 6 Derogs, EXP - 603, 3 Derogs
3/7/17, EFX - 579, TU - 595, EXP - 588, same Derogs
4/8/2017 EFX - 683, TU - 791, EXP - 605 All Chargeoffs removed from TU
5/8/17 EFX 750, TU 796, EXP 625 All chargeoffs removed from EFX
5/15/17 EFX 743; TU 794; EXP 715
6/1/17 EFX 762; TU 794; EXP715

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