Self-employed Refinance

[Anonymous]

My husband is self-employed.  In the past, we had no idea how to claim deductions to lower his tax liabilites and used to pay through the nose.  We have since been educated on how to properly claim those deductions, bringing his AGI way down.  We were approved for a mortgage back 5 years ago based on his tax returns.  I know they want to see 2 years.  The problem is...we just completed a major renovation on our home where we added a second floor (4 rooms and a full bath) and re-sided the house and installed new windows.  Our mortgage is an 80/20 at 7% and 9%, respectively.   Our mortgage has increased the last four years due to escrow.  We really want to refinance.  From what I'm understanding...we would have to take no deductions to make our income look better and pay a fortune in taxes.  Also, we would have to do this for at least two years?  Really?  For what it's worth:  the original lender is BOA and the 1st one is backed by Fannie Mae.  My husband's credit score is 795 and we have no outstanding debt.  What kind of AGI will they require as a minimum?  Sorry, I am all over the place but I am overwhelmed!Thank you in advance!

[BrianB_The_Loan_Professor]

This is correct the average of the last two years income after deductions will be used to determine what is allowed.

There is no way to know how much you will need since you have not given us any other info

Here is a simple formula to use

Combine all minimum payments from all credit debt divide that against your income - you will want that percent to be 45% or less

This includes the projected house payment

Keep in mind it will still have to appraise for more than what you owe and then some to be eligible

Hope this helps

[Anonymous]

We are only looking to refinance the amount we currently owe (we're not looking for cash back.)  We currently owe 162K and the house is now valued (at the very least around 220K) )Not all of the deductions we are now claiming are due to the business.  Some of them are allowed due to the fact that we have since had three children, can now claim real estate taxes, utilities, etc.  (When we originally got the loan, we were living in an apartment with no children.)  We don't really use depreciation as there are not many "big ticket" items that are purchased for the business.  Again, we have no other debt other than the house and payroll expenses.  Hope this additional info helps.  Thank you so much for your time!

[BrianB_The_Loan_Professor]

Banks do calculate mortgage as the upfront DTI with everything being your beck end dti - typically you will want the mortgage to be no more than 35-38% (it can go higher but it is strectching it - I would give a rough estimate that you will need to show an income in the $3500 to $4000 a month range to easily qualify possibly less  - if you are showing that much after deductions you should be good to go and by all means get a refi done you can roll the money into one loan with a very LOW rate - probably save $200-$300 a month easily

Good Luck and welcome to the forum

Brian

[prosody]

May I ask a couple of questions?

What is the current balance on your 1st?  What is the current balance on your 2nd?  What rate are you at currently on the 1st?  the 2nd?  Are you looking to payoff both the 1st and 2nd with the new loan, or have the 2nd subordinate to the new 1st?

I’m assuming you file a Schedule C for your business on your federal tax returns.  If so, go to line 12 on the front page.  That number plus depreciation, depletion and amortization will be added back to calculate your income for one year.

You alluded to some deductions for self - employment – you are not deducting any mortgage interest, real estate taxes,  or other primary housing  expenses such as utilities on your schedule C are you?