Self Employed + W2 for FHA

Anonymous · ‎11-16-2016

A bit of a spceific scenario here! I have a full time job, my husband has a part time one. Prior to 2016, we both were sole proprieters and filed scheduled C, generally had a $1000 profit or so because we reinvested everything back in the companies. So, negligible income.

Jan 2016 we combined our sole props and formed an LLC, and started doing more work and less reinvestment- this year our profit combined will be around $6,000 from the business. So a pretty big increase. I believe for FHS the business has to have exisited for 2 years. Ours technically hasn't, but it's exactly the same business we had before, we just formed the LLC, so it's a different name. Does anyone know if they'll be able to count this income? While our W2 jobs pay well I have high student loan payments, so how much business income they count may actually affect out DTI quite a bit.

Anonymous · ‎01-05-2017

Bumping this with some more info:

2014 & 2015: each filed sched C as sole props, about $3500 profit between the 2 each year

2016: formed LLC and combined the 2 sole props. Ptofit this year is $9000- and the monthly average is relatively steady with a few peak months.

So a significant difference. I have a P&L for 2016, however our taxes may not be completed before we apply. Anyone have any thoughts about hw much business income they would let us use towards our DTI, if any? It makes a big difference as I have high studnet loan payments.

StartingOver10 · ‎01-06-2017

@Anonymous wrote:
Bumping this with some more info:

2014 & 2015: each filed sched C as sole props, about $3500 profit between the 2 each year

2016: formed LLC and combined the 2 sole props. Ptofit this year is $9000- and the monthly average is relatively steady with a few peak months.

So a significant difference. I have a P&L for 2016, however our taxes may not be completed before we apply. Anyone have any thoughts about hw much business income they would let us use towards our DTI, if any? It makes a big difference as I have high studnet loan payments.

The lender is not looking at your profit, they are looking at your gross (less business expenses).

You have to have enough to support the actual loan amount for repayment using fannie or freddie or hud guidelines to get a mortgage.

I see these are side businesses and that you have well paying W-2 type income.

Do you have a down payment of 5% or more so you can go with a conventional loan rather than a FHA loan so your student loans don't have to be factored with the 1% repayment?

Anonymous · ‎01-06-2017

You have a couple of factors here to consider:

1. If you have high student loan debt payments and debt ratio is an issue, FHA will be better than Conventional. Your max debt ratio with a conventional loan is 45%. With FHA you could possibly extend that up to 57%. A lot will depend on the rest of your credit profile.

2. As it relates to your business, as long as you have the same type of business (e.g., you had a plumbing business as a SP and now you have a plumbing business as an LLC) you can use the income. Keep in mind with an LLC you're going to need to provide 1120s and K1's in addition to your FULL personal and business returns. They will give you credit for your net income, less expenses for meals and entertainment, plus depreciation and depletion.

3. If your SE income is increasing, you will get a 24 month average. If it is decreasing they will base it on the lower amount.