Self-Employed May Have a Hard Time Getting a Mortgage

Writing off all that stuff on your tax returns so you pay less in income taxes can actually hurt you.

I don’t talk about this much, but I’m a small business owner. I understand that we like to write off a lot of things. The name of the game is going to be to expense everything that we can so we pay less in income taxes. Everyone knows this, but when it comes time to borrowing money, especially when it comes time to buying a home, they look at your tax returns. Your lender looks at your tax returns to determine if you have enough income to purchase this house.

If you are a business owner and you have a successful business, let’s just say you make really good money and you want to go buy a $1,000,000 house, which you know you can afford. However, your income tax return shows that you make $30,000 a year. Everyone knows that $30,000 a year is not enough to be able to afford a $1,000,000 house.

The only thing that your lender is going to add back on your tax return is interest and depreciation. And if you’re asking me, “Well, then what do I do?” I don’t know. You need to talk to your CPA. You need to go talk to your lender because there’s a delicate balance there.

Whenever I was a lender, do you know how many self-employed people we would give business loans to? To give you an example, like a farmer, we could give them a $1,000,000 operating line of credit, but whenever they would come in for a home loan, we couldn’t even give them a home loan to buy a $200,000 house because their tax returns showed that they hardly made any money.

I’m telling you this information so you’re not surprised, because a lot of people don’t understand this. Home loans are highly regulated in how the government says that you can qualify someone for a mortgage. This has to do with the housing crisis that we had back in 2007 and 2008.

So, as you’re sitting there working with your CPA this time that you’re trying to write everything off, if you’re thinking about buying a house in the upcoming year or two, you need to start preparing for that right now. You need to start showing that you make money on your income tax return and paying some income tax.

You gotta pay the piper to be able to buy a home and get a mortgage. It’s just how it goes.

Writing off all that stuff on your tax return so you pay less in income taxes can actually hurt you.