I have been self employed as a freelance designer since 2002. My gross sales are enough to qualify me for the mortgage, but my taxable income is next to nothing-- purposely on part of the CPA who gave me as many deductions as he could to reduce the taxes I would owe. Of course I actually DO make money, else how would my bills get paid on time. A lender can see by my bank statements that the money is coming in, and I pay all of my debt on time.

I have VERY little debt- other than my mortgage, just a student loan and a credit card with $30/month payment. I have excellent credit. I will be renting out my home and already have a lease agreement and check. The amount of rent covers my mortgage payment as well as taxes & insurance. I also get court ordered child support.

I have a co-borrower on the loan, who also has excellent credit. She has absolutely no debt other than her current mortgage. She gets social security, & rental income.

I've been having trouble due to lenders stating my debt to income ratio is too high- but I hardly have any debt. I'm really not getting it. The new home would have a mortgage payment LESS than my current home does, and obviously I've been paying that on time sooooo.....

Any advice is greatly appreciated. We've already found a property we're interested in and are trying to obtain financing. Thank you in advance!

Any loan that is sold on the seconday market is going to use your Net Income (income after expenses but adding back in depreciation and depletion).  You are going to have to find a portfolio lender (one that will service your loan and never sell it) that allows for alternative income documentation or stated income.  Your best chances will be at local banks or credit unions.

This is something where any loan officer including myself would have to see all of the documentation.  Rental income just like self employment income usually comes with deductions.  When tax returns are not available to calculate rental income we would look for equity in the home and then use a percentage of the rental income to qualify you.  Without seeing all of the documentation I cannot tell you why the lenders are turning you down.

Mickpo,

There is hope...  There are lenders(portfolio) that will accept alternative or even stated income, based on Loan to value, credit score, etc..  In addtition finding a good broker to direct you would be my best advise for refinancing.

Voyage Home Loans

Mike Kim

Depending on the State you live in, it could be very difficult to obtain a loan. It is illegal in my State (MD) to do originate a mortgage without full and complete income documentation. Self-employment income is always viewed as the bottom line + some add backs (depreciation, etc) and not gross sales.

Kent's advice is probably the best. If you have been turned down by at least 3 lenders for the same reason, it is likely that your qualifying income is not enough for what you are trying to accomplish. Look towards smaller local banks and credit unions.

Going forward, too . . . talk to your CPA. It may be that some of the benefits can be delayed by claiming fewer deductions, or stretching some of the write offs out . . .etc. Unfortunately, the secondary mortgage market doesn't let you have it both ways. If you get to use it to qualify for a mortgage, you have to pay taxes on it, too. The amount you claim is the amount you can borrow against. It may be worth having higher tax liability in 2008 (if you haven't filed or can amend) and 2009 in order to reflect your "true" capacity for paying bills. Lenders will want to see a 2-year history, but can sometimes average the 2.

If you really want the house you could always amend your 2007 and 2008 returns to reflect the necessary income to qualify. I have pulled this off once previously. Of course this would require you to "come to Jesus" with Uncle Sam. May cost less than you think if you don't need to bring the numbers up too much.

Good Luck,

Jason

Jason's comment on amending the returns is an option, but this late in the year I don't recommend it, it could throw up flags and cause you to get audited. I would suggest having your CPA increase your income for when you file early next year. Lender's will take the 2 yr average if the last year filed is an increase over the previous year. This may do it for you. Also, it seems no one has told you that the rental income you have mentioned  for your current home will NOT be included in your debt to income ratios. If you have no landlord experience (as in 2 yrs or Sch. E claimed rents) Fannie and Freddie will not include the rental income, you will have to qualify carrying your current mortgage, taxes and ins, + the new homes' mortage taxes and insurance, unless you have 30% equity in the current home and 6 mos. reserves for both properties post closing. This, I suspect is why you guys are on the 'fence'. Ask your broker how much more income he needs to get you an accept with automated UW, it may not be that much and will not affect your taxes owed greatly at all, plus the following year you can go back to writing more off again. Also, the child support is only counted if it will continue for 3 yrs or longer and you have evidence of timely payments of this support (cancelled checks).

Dan

Hi Jason,

Thanks for the response. Actually we did have 1 mortgage broker present us with that option. However, the 'coming to Jesus' would cost us about $15,000, in order to make the numbers where they should be for 2 years. I guess we're just stuck here in our current home. Could be worse! At least we're not in danger of losing the one we're in, which makes us very fortunate :)

Thanks again for your response, and everyone else who has replied.

Hello Lark,

We'd have to amend our tax returns so much that we'd be having to pay about $15,000 in taxes, so it's really not an option at this point. I have heard about the rental income, but I only heard that they count 75% of the rental income, not that they don't count it at all. In any event, our obstacle is the tax returns, and we really can't seem to get around that. Yes, my child support is court mandated, wages are garnished through an income deduction order, and it will be for many more years to come.

Thank you for your reply.