I am self employed and need fha advice

Asked by Ab, 46383 Thu May 29, 2008

I make about 3000 a month. Bank statements to verify. Problem is my past tax records dont reflect that. Can and should I amend my taxes for past two years and owe the irs in order to qualify for an fha loan? Im looking at a 118000 dollar house, credit is 671 and have 5% down.

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Barbara Silc…, Agent, Bensalem, PA
Thu May 29, 2008
Your best bet would be to talk with a loan officer first and get their advice.
1 vote
Debt Free Da…, , 85260
Thu May 29, 2008
I would talk to a loan officer first to make sure this strategy will work. You don't want to have to pay a bunch of taxes if you aren't going to qualify.
Web Reference:  http://getprequalified.com
1 vote
Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Fri Aug 1, 2008
Lending answer:

Under FHA rules, self employed borrowers must provide 2 years of tax returns to demonstrate qualifying income. Bank statements cannot be used to prove income, but are required for qualifying assets. FHA requires just $100 in reserve after cash required to close (statutory down payment is now 3.50%; assets in excess of the minimum can be used as a compensating factor to offset higher debt ratios).

Tim Diersing's 1st answer below is solid - depreciation, depletion, and self-employment tax are examples of "add-backs" to determine qualifying income. I must clarify Tim's second answer somewhat... FHA does have specific debt ratio requirements, but if you have reserves in excess of the minimum, FHA's automated approval software may approve a higher front and back end debt ratio.

Front end debt ratio is the percentage of your qualifying income taken up by mortgage principal, interest, property taxes, and home owner incurance plus association fees if applicable. The ideal ratio cap is 28%.

Back end debt ratio is housing expense as above plus all other debts. The ideal cap is 43%.

I've seen back end ratios approved as high as 55% - but the front end was no higher than 28% - when the borrower had several months' worth of reserves.

Regarding amending tax returns... this topic comes up somewhat more frequently now on lender forums. FHA underwriters will require evidence the amended return has been filed (verified by a lender ordering a transcript of your returns using IRS Form 4506T) plus proof the additional tax obligation has been paid.

Do not amend your return without consulting a CPA first, then you must ensure that your prospective lender will accept the 1040X in place of the 1040 originally filed.
0 votes
Mike Tezak, Agent, Valparaiso, IN
Thu Jul 31, 2008
If you do not have lender try Jeff Svantner in Valparaiso, Indiana from Sistar Mortgage. His contact is 219.405.0893. I am a top producer over the last 8 years and Broker Owner for Realty Executives Premier. I can assure you he is the best to help you with this. If you are not using agent we offer many incentive packages for buyers to use our services inquire at info@teamtezak.com.
Web Reference:  http://www.TeamTezak.com
0 votes
Nancy Glicka…, Agent, Chesterton, IN
Fri Jun 27, 2008
With FHA your credit score needs to be 570 and above. With a insured conventional your score needs to be in the high 600(range) I would ask your accountant about amending your tax return and if that is even needed. Then contact a loan officer, he may help you with the tax information also. You may ask your mortgage officer if you qualify for a Genesis program, where the seller needs to pay your 3% down payment and a 2% towards closing costs. I hope this helps! Good luck!
0 votes
Matt Blum, Agent, Valparaiso, IN
Tue Jun 24, 2008
I recomend a no Doc loan if you need it right away. Or wait until you can quallify for a FHA. But do talk to your local bank and ask for their loan officer.
0 votes
Tim, , Indianapolis, IN
Thu May 29, 2008
AB - One thing I didn't point out in my initial answer was the fact that a current profit and loss statement can be taken into consideration when averaging your income. New FHA rules do not have hard debt ratio limits. As mentioned, talk to an experienced mortgage loan consultant. Your first hurdle will be documenting income. Credit score shouldn't even be an issue unless you are looking at a NO DOCUMENTATION loan or certain loans offered by some banks and mortgage brokers. Feel free to contact me anytime.
Web Reference:  http://www.53.com
0 votes
Tim, , Indianapolis, IN
Thu May 29, 2008
Depending upon what your tax records show you may still qualify for an FHA loan. Furthermore, there are certain items that can be added back to your bottom line for qualification purposes. I would talk to a reputable Mortgage Consultant prior to amending any returns. You may have conventional loan options as well. Based upon your question there are too many unknowns to offer any solid advice in this format.
Contact me. I'd be more than happy to take a look.
-Tim Diersing Fifth Third Bank 317.882.3206 or timothy.diersing@53.com
Web Reference:  http://www.53.com
0 votes
Tony Grego, , Indianapolis, IN
Thu May 29, 2008
Interesting question. More and more folks are working with the IRS. It could be your option.

I am assuming you had a broker try to get you pre-approved? It seems that most folks need to have a 680 for an income waiver or verbal.

It may be quicker to try to raise you score a little bit. Go to http://www.optoutprescreen.com and do the electronic out for five years. This tends to raise scores (I have seen up to 20 points) in just a matter of two to three weeks. Also see if you have any credit cards that can be paid down to under 50% and if possible 30%. Many folks get stung with a high balance percentage on a $700 limit. This might help.
There is also a couple of investors left that will still take you bank statements (as long as it is just one).

Sounds like you have some options. Let me know if you need any help
0 votes
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