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Qualifying income for W-2 employee that owns a business?

I am a W-2 employee and I own my own business that I also pay myself as an employee and issue a W-2 for myself.  My question is how do I need to report my income from my business to use it to qualify for a mortgage?  Will the combined W-2's from my employer and what I pay myself be used or will my tax returns be used?  What is the best way for a person in my situation to provide a lender income verification?  I can not qualify for the house that I want solely on my employers income.  How should I work my business finances to make up the difference?
  • July 21 2012 - US
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Answers (6)

You will need to submit your business tax returns along with your W2 and paystubs for your income to be properly calculated.
  • July 22 2012
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Profile picture for user5255252
What will I need to show on my business tax returns?  Does it matter what I show on my W-2 from my business or is it based simply off of my business profits for the year as shown on my tax return?
  • July 22 2012
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Profile picture for Mortgage Brothers
This is a fairly simple question that comes up all the time.  Your income for qualifying purposes will be your current W-2 income from employment plus a 2-year average of your self-employment income from either the Schedule C (sole proprietor) or Schedule E (S-Corp, LLC, Partnership).

If your self-employment as reported on Schedule C or Schedule E is producing a positive number over 2010 and 2011 add together and divide by 24 - that is what will be added to your current salary as stable monthly income for underwriting. 

If it is a negative number do the same thing and that is what will be subtracted from salary income. 

For self-employed borrowers (whether full time self-employed or on the side) there is a disconnect between what your accountant or CPA is aiming for (minimizing reported income for tax purposes - i.e. writing off everything plus the kitchen sink) and income for mortgage underwriting purposes. 

You can't have it both ways anymore. 
  • July 22 2012
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Profile picture for user5255252
Thank you for the replies!  So there is basically no benefit to increasing my W-2 at the end of the year from my business since everything is determined by the Schedule E?

How about my wife as an employee of my company?  She is not an owner just an employee.  Does her W-2 account for anything?
  • July 22 2012
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Profile picture for My2cent$
If you are slicing a pie is there a way to slice the pie that will increase the amount of pie that you have?
  • July 23 2012
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Profile picture for shapiroamg
You will be qualified on W-2 income, Schedule E Income (your K-1 distribution) and you can use your wife's W-2 as well (provide she has a two year work history).

Your situation is not complicated but you may need a bit more supporting documentation than a typical borrower.
  • July 23 2012
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