The Mortgage Myth That Is Keeping Entrepreneurs From Buying

If you are self-employed, own a business, or earn 1099 income there is a conversation worth having before you assume homeownership is complicated or out of reach. The truth is you probably have more options than you think and the bank that told you no may simply be the wrong lender rather than the right answer.

Why Tax Returns Tell the Wrong Story for Business Owners

Entrepreneurs make great money. A well-run business with smart tax strategy minimizes taxable income through legitimate deductions and write-offs. The same discipline that keeps your tax bill low is also what makes your tax return look unconvincing to a traditional mortgage underwriter who relies on adjusted gross income as the primary measure of qualifying income.

That is a problem with the tool being used to measure you, not a problem with your actual financial strength. A business that generates strong cash flow and a business owner who has managed it well for years is not a bad mortgage risk. A qualification framework that cannot see past the tax strategy is simply the wrong framework for that borrower.

The Programs That Are Actually Built for Self-Employed Borrowers

Bank statement programs use actual business or personal deposits over a twelve or twenty-four month period to establish qualifying income rather than relying on tax returns. The deposits reflect what actually flows through the business. That is a more accurate picture of a business owner's real income than the number left over after every legitimate deduction has been applied and it is the number that should be driving the qualification conversation.

For investment property purchases the situation can be even more straightforward. DSCR programs qualify the deal based primarily on the rental income the property generates rather than the borrower's personal income at all. If the rent covers the mortgage payment the loan works regardless of how complex the borrower's tax situation looks.

Why Hearing No Once Does Not Mean No Everywhere

Different lenders have different tools. A bank with a rigid conventional underwriting framework and no access to non-QM products will see a complicated tax return and decline the file. That is not a verdict on the borrower. It is a reflection of the lender's product limitations.

As Moses Alford explains you took a completely different path to make your money. You might need a different path to get your mortgage. That is not a problem. It is just a strategy question and the right lender has the right programs to answer it.

If someone has told you your income is too complicated to qualify give Moses Alford a call. He likes complicated.

Sources

ConsumerFinancialProtectionBureau.gov
MortgageNewsDaily.com
NationalMortgageProfessional.com
Investopedia.com
FannieMae.com