Underwriters LOOK FOR THIS | Self-Employed Borrowers - YouTube

self-employed underwriters underwriters for  self-employed loans look for this you want to  

watch this video if you own your own business  and you're wanting to know what underwriters  

think about when they're looking at your loan file  so the first thing to know is that you must have  

two years as a self-employed person so just go  back to when you started whether it was your dba  

or if you filed a corporation etc we  need to have two years since that time  

you will need to be prepared to provide  two years of tax returns that has this  

self-employment income on it now there is an  exception if you're five plus years with the same  

entity the same self-employed job some people  have multiple companies so five years with the  

same type of job and you're gonna and you qualify  for a conventional loan you can possibly just do  

one year of return so that's really important to  know so remember five plus years on that one so  

let's just say two years and you've got to have  the two years one of those years has to include  

at least six months of self-employment for that  calendar year so it needs to be at least from  

july to december that's a six month period of  time that's reflected on those tax returns okay  

the other thing that underwriters look for is  we want to make sure that the income is not  

declining more than 30 percent so we understand  there's fluctuation we understand that there's  

you know deductions and investment into  you know materials and things like that  

that's why we actually take the two-year average  we know that there's you know fluctuations however  

if one year was positive and the next year which  is the year you're buying the house is negative  

that's not a great thing so it's really important  to know discuss that with your local lender see  

if there's documentation that can be provided or  an explanation etc etc to see if there's anything  

alternative that we can do otherwise what we're  going to do we do verify you have the two-year  

history but we're going to take your income from  the year that is the declining year so if you had  

70 000 in one year and the next year was 50  000 we're going to take the income of 50 000  

and just divide that by 12. we're gonna take the  worst year in that is what i mean now what do we  

count as income this is really important i think  this is one thing that a lot of self-employed  

people don't aren't sure about we take the net  income after expenses so there's a lot of people  

that file schedule c which is the schedule and the  tax return that is for sole proprietors you know  

you don't have anything fancy like a corporation  or a partnership or anything like that it's just  

you know most of the people are schedule c  employees which is fine so we take you have  

your gross likes let's say your gross receipts  was 200 000 and then you had materials and you had  

car expenses and you had meals and you had office  supplies and we get it we know that everybody's  

deducting as much as they can to pay as little tax  as possible we get that however we can only count  

what you claim to the government so after  all those expenses are taking let's say in  

this example that the 200 000 has been diluted  down after everything on the very bottom line  

on that schedule c it says net income taxable  income as fifty five thousand dollars the 55 000  

is what we're going to use as the income when we  take the average now there's a couple of things  

that we can add back in actually we've been doing  i personally have been doing a lot of loans lately  

for a lot of of truck drivers and so there is  a way we can take the mileage that they drive  

so you you deduct if if on the second page of  that you're deducting mileage for business use  

we can actually take 25 cents per mile that  you've deducted and we can add that back in  

to your income so that's a cool thing the other  thing is we can add back in for depreciation so  

those of you that have you know equipment and  materials there might be some some upswing on  

those numbers as well so again get with a local  lender as soon as possible so they can look at  

those returns calculate what your income is the  the next thing that underwriters are looking for  

is we want to see your business bank statements  for a couple of months because we want to make  

sure that you're still making deposits now  during covid this was more necessary than not  

now after covid when this video is being made  it's not as much of a big deal but especially  

if your income is declining be prepared that  the underwriter might ask for you know bank  

statements for a couple of months to  just make sure that things are active  

the other thing we're going to be looking  at is we're going to need a letter from your  

your tax preparer that you at confirming that you  are in fact self-employed and that you're still  

active in business now this is one if you're a  self-filer we would have to have an alternate  

third-party disinterested party like an attorney  but it will definitely be necessary or sometimes  

secretary of state filings might be necessary so  if you're watching this and you're a self-preparer  

of your taxes get with a tax preparer as soon as  possible to find out exactly what might apply to  

you the most important thing that we're looking  for is consistency so just keep that in mind  

and keep all of your records be prepared  to to give the tax returns be prepared  

to possibly write letters of explanation if you  have business returns we also want to look at  

the business and see how that's performing  you might have a partnership that has a k1  

form be prepared to provide any addendums or  any schedules for your tax return as well so  

i hope that this has answered a lot of your  questions and mystery around self-employed  

we love to do loans for self-employed borrowers  so if you're in texas call me talk to you soon