Impact of K1 losses in debt to income ratio
I'm purchasing a condo (new construction). I went with the builder's preferred lender because of their incentive program. The process started in May (5 months ago), and we're now 2 weeks before closing. Everything has gone fine so far, but I just got a call saying the underwriter might deny might loan because of information found on K1s and reported on my taxes.
Here's my exact situation:
- Conventional 30-year fixed loan.
- Monthly payment is $ 1100, home value is $ 245K, loan is $ 184K (I am putting 25% down).
- W2 income is $ 84,000 / yr gross, minus $ 6480 / yr alimony and $ $ 5760 / yr in child support.
- No debt.
- Credit score: 800.
I own 17% of an LLC, a software startup. My initial cash contribution was $ 2000 in 2008. Since then we've received investments, and our yearly losses are significant as we grow. These losses are passive, they are reflected in my tax returns as they should (since it's an LLC), but since my cash contribution is small, I get no tax break from those losses. I am also not personally liable for the losses.
Well, it turns out that for some unknown reason the underwriter decided to count the LLC losses in my deb-to-income ratio, which is now upside-down. This makes no sense to me. If the LLC was to generate huge profits, it wouldn't guarantee those profits to be returned to me as cash and therefore wouldn't count towards earned income. Then why would those losses for which I am not liable be counted as debt???
I am at my wits ends and have no idea what to do. I already have $ 5,000 spent towards this new condo, I was pre-approved and told everything looked good. If I can't move in 2 weeks, I have no idea where I'm supposed to go.
Is there anything I can do about this???