Denied a Mortgage b/c of my 2012 taxes in 2015. Help!

[Anonymous]

Kind of lost on this one.

4 Months ago I applied for a mortgage with Quicken. Being self employed, I own an S Corp, they needed the typical prior two years of taxes. I was denied. My 2012 showed a loss and 2013 was a profit. They would not look at the profitable 2011 year, so it was a no go. Expected, but I gave it a shot to make sure other things like credit were OK.

I had to wait until 2015 to finished my 2014 taxes. My 2013 and 2014 show a profit with an average income of $60k, perfect for us.
But I was denied...because of my 2012 loss. My accountant carried over my Net Operating Loss from 2012, which was about $35k, onto my personal taxes for 2014. The mortgage company says my average income is actually $30k for 2013 and 2014, and not enough for a mortgage. So even though my 2014 taxes show I made 75k last year, the mortgage company is telling me I really only made 40k. 

My accountant tells me that the NOL carry over is just to reduce what I would owe to the IRS for 2014 tax year, but is not part of my true income. 
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What am I missing here? Why would quicken take into account a NOL from 2012, a tax year they do not even want taxes from, and state it is part of my 2014 income? Correct me if I am wrong, but my income reported on my personal taxes on line 17 is my income. The NOL only reduces the amount of tax to be paid to the IRS, similar to other deductions like Kids and Education expenses. Taxes are like greek to me, but I do not see anywhere on my personal taxes that points out my line 17 income from my NOL is my new actual income from 2014.

Thoughts?
thank you!

[Glenn_S]

From what I have heard, Quicken is like a big-box bank...if you aren't a W-2, standard mortgage, you will confuse them...LOL

[Anonymous]

I've been told a lot of underwriters won't approve a quicken loan because they are too lenient in their practices.  Not sure how much truth there is to it, but when I was getting my first mortgage our underwriter told us this.

[Anonymous]

What was your net income for the two years 2014 and 2013? That is the number the underwriter would use. Divide the two year net income total by 24. If the NOL carried over from 2012 reduced your taxable income for 2014, then the underwriter will deduct it in the income calculation. This is a common issue that self employed borrowers face when applying for mortgages. An accountant looks to minimize income to reduce taxes paid and the mortgage application needs income maximized to qualify.

[Anonymous]

So what is the option here? Am I crazy to think they need to include this deduction in my income if it was from 3 years ago?
Is there a bank that will look at is different?

I am showing about 5k/mo in income on average for 24 months. Looking at a 225-250k home and putting 100k down.

[ezdriver]

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@Anonymous wrote:

So what is the option here? Am I crazy to think they need to include this deduction in my income if it was from 3 years ago?
Is there a bank that will look at is different?

I am showing about 5k/mo in income on average for 24 months. Looking at a 225-250k home and putting 100k down.

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What your accountant told you is correct ... that you are using the loss carryover to reduce your tax liability. On the other hand, the underwriter sees that tax-liability reduction in the form of a reduction in taxable income. Therefore, they are both correct. As a previous poster noted, this is a common issue with self employed folks. Your account should explain to you HOW you are reducing your tax liability to the IRS. You may want to try a local lender that may offer portfolio loan products.

[Anonymous]

So I am likely to run into this problem with any traditional lender?

[Anonymous]

You will face this concern with almost all lenders that follow fannie mae guidelines/FHA Guidlines. It is required that operating expenses be deducted from income calculation. If it was deducted on 2014 tax return, they will deduct it as if it was from that tax year even though it was a carryover.

[Anonymous]

So who does not follow those guidelines?

[Glenn_S]

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@Anonymous wrote:

So who does not follow those guidelines?

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A local or portfolio lender who won't sell the loan. If a loan is to be sold, then it needs to follow the Freddie/Fannie guidelines.