Profile picture for Infopls

What documents required for self employed?

Some facts:
All 3 of my FICO scores are 790+
My 2008 & 2009 tax returns show AGI of high 5 figures.
My 2010 tax return is on extension and won't be filed until October.
I anticipate the final 2010 AGI to be $60-80k same in 2011.
I have no outstanding debt other than credit cards that are paid off in full monthly.
In 2010 I became self employed and continue to be up to now.
I want to apply for a mortgage with as little down as possible, maybe 5% or below.

What documents will I need to produce for the loan? Specifically what will be required for 2010 and 2011 (being that 2010 is still on extension)?
Will i need to produce just a P&L or P&L and a Statement of Net Worth?
Compiled or reviewed? by a CPA?
What if I'm a CPA, can compiled FS for myself be accepted?
What other documents are required? Bank/broker statements?

These are very specific questions and I would appreciate specific answers from lenders.

Thank you
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July 03 2011 - US
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Answers (9)

Lender will not look at gross receipts, they will look at net profit and add back certain deductions such as depreciation.    If you are looking to improve your qualifying income, then limiting deductions is a strategy. 

The best strategy is to accurately list all your deductions so your true net income can be calculated, and that way you won't purchase a house that you wouldn't otherwise qualify for.

Capital gains typically will not be counted toward qualifying.    If you need capital gains to qualify, you can supply a two year history of gains and evidence that you hold additional assets that you can sell for future gains in needed.

Generally if a P & L is requested to provide a more current picture of finances, an audited version is required.
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July 08 2011
Profile picture for Infopls
Rudi, thanks for the file.

It says (for self employed):
Copy of last 2 years tax returns - so looks like I'd have to file 2010 before applying.
Can someone clarify a point for me on this:
I use schedule C to report self employment income (so no corporate returns). There are some deductions that I can take, but may choose not to take on my 2010 return to get a higher net profit. Is this a good strategy or do lenders look at only gross receipts minus some specific deductions?
If I go with that strategy, I would obviously have to pay more taxes, so would like to hear any feedback if it's worth it.
Also, do lenders take in account realized capital gains at all?

Copy of current P&L & BS - doesn't say anything about compiled/reviewed which is good. Can someone confirm? These services are not cheap.

Many thanks to all
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July 08 2011
Since you became self employed in 2010, your income as a wage earner for the prior years of 2009 and 2008 can not be used to qualify.  If the automated underwriting system only asks for one year of tax returns instead of two then you have to file your 2010 tax returns right away and apply for the loan.  An extension for 2010 is not going to work.  Providing a P&L and FS from a CPA is not going to work either. Please note that if your business is a corporation then the corporate tax returns are going to be asked for as well. 
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July 06 2011
"These are the items needed for all loans including the extra items needed for self-employed.
http://www.umboc.com/Uplo ... ation.pdf"

Hmmm, that document looks very familiar. Interesting that when you download the pdf and view the author in properties it does not say ACC.

It's ok Rudi, I'm sure the author does not mind if you use it.
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July 05 2011
Good recommendation Stephen - need to have the automated underwriting system come back with just 1 year of tax returns finding, but it's certainly possible with a well qualified buyer.
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July 05 2011

Besides the below, your questions would be lender specific and your personal situation. The best place to discuss this would be directly with whom you think will originate your loan.

Happy funding, Rudi



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July 05 2011
Infopls,

These are the items needed for all loans including the extra items needed for self-employed.
http://www.umboc.com/UploadFiles/0733661923/ACC%20Documents%20Needed%20For%20Loan%20Application.pdf

Happy funding, Rudi

http://www.umboc.com
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July 05 2011
It depends on many factors but you can use one year self employed if the underwriting findings say to only provide one year with certain lenders.  But you would have to file your taxes prior to applying for a loan.  They want to see what your total income is after all your deductions for being self employed. 
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July 05 2011
Being self-employed without any filed tax return isn't going to work out.

You'll need at least 2 years of self-employed tax returns in my opinion, not necessarily 2 years of self-employment, but 2 years of self-employed tax returns - which would be your 2010 & 2011 tax returns, and that couldn't be possible until 2012.
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July 03 2011
 
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