Prior to 2008, many borrowers that had been self-employed could obtain home loans without getting to provide documentation. With the tightening of mortgage credit score that began about 18 months ago, lenders now require self-employed borrowers to provide two years of tax returns to document their earnings. This article is going to talk about how to strategy your 2008 and beyond taxes to maximize your capability to qualify and what to know about veterans getting qualified for an VA mortgage (or any mortgage) becoming self-employed.
When you apply for a home mortgage, you will have to provide your tax returns in the following situations (this is not an exhaustive checklist):
- You are a self-employed sole proprietor or business owner (consists of LLC’s, S Corps, partnerships, etc…)
- Much more than 25% of your earnings is commission
- You personal rental house that you derive earnings from
- You receive earnings from dividends, royalties or money gains that you are utilizing as earnings to qualify for a mortgage
- You have earnings from partnerships or firms (exactly where you are less than 25% owner) that you want to use to qualify for a mortgage
- You receive 1099 earnings that you want to use to qualify
The underwriter will look at your tax returns to determine your earnings. Generally they will average your net earnings from the final two years to calculate your qualifying earnings. For example, if you get a home mortgage in 2009, the underwriter will average your 2007 and 2008 earnings from your tax returns and that will be the earnings used to qualify. One common issue right here is that many business proprietors have many business expenditures that they create-off bringing their taxable earnings down to a very little amount that will not qualify them for a home mortgage. And the underwriter will only count your net earnings after most of your business expenditures (there are some expenditures that you can add back again to your earnings that I will talk about later). So since many business owner create-off most of their earnings, they are getting a lot of issues qualifying for home loans right now.
There are expenditures that underwriters will add back again in when figuring out your earnings off of your tax returns. Right here are the most common:
- depreciation
- depletion (this is not a common create-off and most will not have this)
- business use of home (such as a home workplace)
- casualty losses dues to theft, fire or natural disasters
- loss carryovers from prior years (since the loss was in a prior year, it will not be counted against your qualifying earnings)
- business automobile mileage
- 1-time extraordinary expenditures
Since these expenditures can be added back again, it is a great strategy to maximize these deductions on your 2008 taxes if you strategy to purchase a home in 2009. Make certain prior to completing your 2008 tax returns you speak to your CPA or tax preparer and explain that you would like to qualify for a home mortgage to purchase a house and you would like to maximize your net earnings. Also, mention the above expenditures that can be added back again in to your qualifying earnings to your CPA and see if you can maximize these deductions.
If you have additional questions or would like to be pre-authorized for a home mortgage, please get in touch with me as I would be delighted to help. And please browse the other content articles on www.socalvaloans.com for more information about VA loans.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer and VA mortgage specialist
858-922-7899 immediate
rob@affinity-monetary.com
Comments on this entry are closed.