Can my S-Corp paystub (W-2) qualify me for a conventional loan?

Question

This question is for the lenders out there!

I am planning my second house hack and would like to get pre-approved so I can start getting serious about the deals I am analyzing. My last house hack allowed me to save enough money to leave my day job and start my real estate bookkeeping business, it's been extremely rewarding!

I know when someone is self-employed, lenders like to see 2 years of income history from that activity on a tax return. However, my company is taxed as a S-Corporation and I pay myself a consistent W-2 wage. Would I be able to use that income for getting a conventional loan approved even though it has not been 2 years?

Shaun Weekes · Answer

Since you're self employed you can control your income up or down.  For this reason and some others, conventional guidelines will base your income on the last tax return filed.  So, your paystub will be required to show you still are earning income but the DTI( debt to income ratio ) will based on your previous years W2 and K1 earnings from your 1040's and 1120's

If you can prove you have been in business for over 5 years Freddie will take one year of returns. At the top right of your 1120's will be the date of incorporation which is proof.

Fannie might take one year if under 5 years in business but it's all random and based on their automated UW system.

I hope this helps and have a good one.

Chris Seveney · Answer

speak with your lender, but I have been told if I am taking a paycheck from the W2 that is your employer, its an entity and you are a person taking the salary so they would accept it.

Jonathan Taylor · Answer

@Matthew Cervoni you are technically designated as self employed and can qualify based on 24 month bank statements from your company. Officer payouts, dividend income and W-2 are other ways to up your income for a house hack. You need the right lender as this isn't a boiler plate option so vet the lender and make sure they understand your needs and they know how to read a K-1.

Chris Mason · Answer

I'm an S-Corp myself.

How much you pay yourself a salary will not make a difference. You are self-employed. If you pay yourself $100k/yr salary instead of $60k/yr, then the biz will have $40k less profit than it otherwise would have. The calculated income will not change.

In some cases the AUS will approve with 1 year of tax returns, in come cases 2 years will be needed, for a self employed person. The only way to find the answer is to apply, ideally with someone that's familiar with the "tricks" that can turn a 2 year requirement into a 1 year requirement. As an example of that, the little 401k from 3 jobs ago with only $14k in it that you kind of forgot about and didn't otherwise plan to think about for another few decades? Including that account could make the difference. Or maybe at 5% down they want the 2 years, but at 15% down it'll go for 1 year. And so on.

Note:

When you apply for preapproval, it's assumed that you are not attempting to commit fraud. So you could very easily provide your paystubs and W2s, not disclose that you own the business, and if someone doesn't look carefully, you could probably get preapproved with the paystubs being treated as a base salary rather than self employment, without 2 years of biz tax returns being requested. Especially if it's an internet or call center type lender (and listing agents know this, which is why those offers go to the bottom of the pile, all else being equal).

When you're in escrow, it's assumed that you (and everyone else) are attempting to commit fraud. Greater scrutiny here. So this is when it would come out, and it would be an 11th hour loan denial, potentially costing you not only the house, but your earnest money deposit as well.

This is why we should always take the anecdotes of "I got approved for $2m! I just did XYZ!" without the person specifying if it was a preapproval, or if they own the home with keys in-hand, with a grain of salt.

Val Garrow · Answer

Are you buying it as an Investment property?

Are you thinking about moving into the property anytime soon?

It depends if you need to use your paystubs or no need at all.

Look into Debt Service Coverage Ratio Loan (DSCR) - Our DSCR LOANS -

• No income or employment information required
• Short-term rentals and VRBOs allowed
• Properties can be in LLC's name
• No limit on the number of properties
• Start @ 620 100% Gift Funds OKQualify on I/O payment VRBO/AirBnB OKVacant units OK LTV's to 80First time investor OK DSCR <1 OKDSCR up to 8 Units Including Mixed UseCash out to $2M FICO's down to 660LTV's to 75 Only 1 appraisal neededUp to 3 commercial units allowed 100% Gift Funds OK
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Can my S-Corp paystub (W-2) qualify me for a conventional loan?

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