1099 Tax Return Messing Up My Loan Application?

[Emily Kaitlyn Hunter]

I am a fully commissioned 1099 insurance agent. I bought my first house 3 years ago for $269,500. I am now looking to put offers in on second home/airbnb rental properties that are right around this price. The most expensive one is listed at $279k. 

My lender keeps saying that my DTI is too high to qualify for the $279k. But my cash flow is very high. It's my tax returns that seem to be the issue. This makes me nervous for future years because my CPA structures my taxes to take advantage of the tax code and my adjusted gross income is very low.

However, this home is slightly more than my primary residence, I make 3x what I made three years ago, and my credit is 100 points higher than what it was at the time of my primary purchase. 

It's crazy to me that I can be pigeon holed like this and really frustrating. 

I think about investing in other properties with conventional financing and then I think about purchasing a nicer home in the next few years and not being able to qualify. Am I doing something wrong?

I should mention my lender is a credit union offering a 10 Year Arm with 6.25% interest rate with 10% down and no points. But based on my tax returns I may have to go the investment loan route with 7-8% and points. 

Any help would be greatly appreciated!

[Kristen L Garner]

Hey Emily, There is a beautiful category of loans called non-conforming (AKA nonQM) that will come in and save the day for those of us who are great at tax write offs!

For a primary residence purchase I would recommend a Bank Statement loan. You still need a job and income to qualify but taxes and write offs are not part of the equation. These programs require 10% down for primary or 20% down for investments. The neat part about using it for primary is you don't get hit with mortgage insurance like you would on a conventional or FHA when you put down less than 20%. The downside is you get a higher rate than conventional or FHA.

For investment properties you can use DSCR loans (Debt Service Coverage Ratio) where you qualify based on the property and not your finances. This will typically require a 20-25% downpayment.

I should also note that you can use these programs for refinancing as well. Let me know if you have questions and best of luck!

-Kristen