Today, I want to talk about any of you who are self-employed and looking to finance a home; whether it's to purchase an existing home or to build a home.
So when you're self-employed, your income is not W-2. Typically, it's going to be 1099 and when you have 1099 income, you have the opportunity to take advantage of a lot of tax deductions and if it's a sole proprietorship for example and you file your self-employment income on your personal tax returns, that will usually be reflected on what's called a Schedule C. On your schedule C, it will show your overall revenue; it could be a million dollars- that's fantastic, but if your costs exceed your Revenue because of your actual cost of goods sold and or the deductions that you make to the point to where your net income or your bottom line is zero or negative that's the number that a lender will look at to qualify you on.
So an example, if your revenue is a million dollars and your actual cost of goods are five hundred thousand dollars and you don't deduct anything (yeah you're going to pay some taxes on those items that you don't deduct) but your net there should be roughly about five hundred thousand dollars.
But if you want to capitalize on those deductions so you don't have that tax burden and your revenues a million dollars, your cost of goods sold or five hundred thousand dollars and you deduct another five hundred thousand dollars so that you break even, you technically have zero income to qualify for a home purchase.
Lenders will look at your most recent two years of federal tax returns to see what that bottom line is so if you're thinking about buying a home and you're self-employed, that's something that you're going to want to discuss with your tax accountant I would say two years prior to buying a house so that your numbers will be where you need them to be to qualify for a home.
I hope that helps and I would love to talk to you if you've got any questions- give me a holler or email me at troberts@emortgagecapital.com and I hope you guys have a great day!
Click here to start your home loan preapproval: www.TerryRoberts.com
Terry Roberts, USMC Veteran Sr. Mortgage Broker NMLS 397987
E Mortgage Capital, NMLS 1416824
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