Schlacher, Home Buyer in Los Angeles, CA

what counts as income when one is self-employed and salaried?

Asked by Schlacher, Los Angeles, CA Thu Dec 17, 2009

My husband works in the movie industry- for some movies he is getting hired freelance and for others salaried, really depends on the production. despite that he is improving his overall income is increasing for more than 20% every year and we are way below what we could afford, one lender told us he can't count my husbands income (over 100k annually), because right now he is freelance, but last years tax return only shows $400 in self employed income (after deductions)- because he was salaried for most of the year with ~80k income, but he can only count either self-employed OR salaried..
this has never occurred to me before with any lender, e.g. even though he is considered self-emloyed, any other lender would count ALL his income, just that his income will be based on teh last 2 years tax returns, not on this years income..

Is it really only either salaried or self-employed and has any other lender been wrong so far and we would have had a bad awakening at the end of escrow??

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6
Don Maher, Mortgage Broker Or Lender, Woodland Hills, CA
Tue Feb 2, 2010
If you are trying to go Agency (Fannie, Freddie, Fha) you will need to qualify with two years of self employed income. Your W-2's will not be used.

Our portfolio lender will use 1 year of self employed income, and look at the W-2 income previously to make sure it is consistent with what your new income is.

As a side not to Diane, I have two "banks" that still do stated income loans, as well as a few "bankers" that do it. RESPA technically does not allow stated income loans on primary residences, so the lenders require the property take title as a corp or LLC. Some lenders process it as a full doc loan, and make exceptions on the income. Rates vary from 5.9% for a 3 year loan to 7.00% for a 30 year loan. Fees are usually about 4.0% (Steap) but there is really nothing to compare to.

We also have VOE only loans, as well as 20% Variance Programs, where we gross up ones verified income 20%. Hope this helps a bit. Thanks.
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Schlacher, Home Buyer, Los Angeles, CA
Tue Feb 2, 2010
Thanks for all the answers, but the question never was about stated income, but it is all taxed and reported on our taxes and documented with W-2s and Misc etc the income we filed on our taxes... I also understand that self employment income is counted after deductions, nevertheless, we claimed a) income reported on W-2 and b) self-employment income from schedule C.
that loan officer insisted that he can only consider EITHER a) or b), but no the income of a+b together.

I think this question causes so much confusion, because there is NOBODY else that ever heard of this..
0 votes
Dianne Hicks, Agent, Rancho Bernardo, CA
Tue Feb 2, 2010
Schlacher
Everything that I hear is that bottom line what you paid taxes on. I would love to hear differently because being self employed we can have many write offs but if we do, it lowers our income for purchasing power. I don't know of anyone getting a loan on stated income anymore. I do know there are private lenders but few and far between.

It would be interesting to hear Don elaborate a little.
0 votes
Don Maher, Mortgage Broker Or Lender, Woodland Hills, CA
Tue Feb 2, 2010
There are plenty of niche portfolio programs available these days. Most people, including Realtors, CPA's, Financial Planners, etc, just dont know about them. What down payment are you working with? With a 40% down payment, there are even stated income loans still available. We also have a program that only requires 1 year of self employment vs. 2.
0 votes
Schlacher, Home Buyer, Los Angeles, CA
Wed Jan 13, 2010
<meaning that they considered that he didn't earn hardly anything for one of the years, either way they looked at it>
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Schlacher, Home Buyer, Los Angeles, CA
Wed Jan 13, 2010
It's not about whether they will look at the taxes from teh past years, they are certainly welcome to do so, the problem I was having is that in one year my husband was mostly self employed, while in another he was mostly salaried and that credit union/ bank would only consider one of the 2 incomes either self-employed OR salaried , which didn;t make any sense to me at all. I mean if we had any additional income, e.g. through rentals or whatever, they wouldn't consider that either??
But, yes, I did get many other opinions- nobody else would do that and of course consider the total income.
That is not the case for that credit union, so their underwriting is stricter (frankly unreasonable since all the securities, credit score, loan to debt ratio, down payment AND steady income is there in terms of income is exceptional), but I guess this is how they can keep their rates low, but not taking any risk and therefore not lending at all.. Again, any other lender and bank will..
Thanks!
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