For a mortgage, if you are an employee of an LLC you own are you self employed?

[Michelle Svetlitski]

My husband worked an employee for a medical device company for 20 years. In September he opened his own company to become an independent distributor. At that time we did not consider the implications it would have for a mortgage. The company is an LLC with S corp designation, and he and I are both on the payroll. Our CPA said we are not self employed, but I believe we are still considered self employed for the purposes of getting a mortgage? We sold our home last year and moved into our investment property so we would be able to buy a house and pay cash when something came on the market. We are still looking, but realized we may need to take a mortgage if we can not find what we want in our price range. We have about $820k in cash for the home. If we wanted a mortgage for $180k to buy a home for $1 million is this impossible? Or could we get a HELOC on our investment home? The investment home is worth $475k and we owe about $78k. I just wanted to see if there is any possible way we can get a mortgage! We live in The Woodlands, Texas if that matters. Thank you!

[Jay Hurst]

Quote from @Michelle Svetlitski:

He will be getting a W2 from an employer he worked for until he opened his own business. My husband and I are the sole owners of the new business which is an LLC and we are both on the payroll so he and I will be getting a W2 from the new business, but it will only cover the month of December. Total income from W2 sources will be roughly $170k. We will also have self employment income on our return from the months before we opened the LLC and will be getting three 1099s.

We sold our home to downsize after our youngest left for college, with the entire purpose so we could pay cash for the home and minimize our expenses. We obviously would like to buy something that costs less than the cash we have, but if we do end up going with a mortgage, we want the smallest possible mortgage which we will endeavor to pay off as quickly as possible. I am just trying to determine if a mortgage or HELOC is possible in our situation?

 @Michelle Svetlitski    From a mortgage perspective, yes you are self employed. If you own more then 25% of the business you are self employed even if you have paystubs and a W-2. Think about it, where do the paystubs and w-2's come from?  It is one and the same. You need at least 1 full year to use tax returns with most programs going to require two. bank statements only programs require at least a year.

And you cannot use W-2 income from a previous employer. You would have to be able to prove that income was still coming which of course it is not. 

So, you are in a tough spot to buy today using earned income. if you have a large amount of assets (even in retirement if over 59.5) you can use an asset based loan to generate income. 

if that does not work, you could pay cash for the new home, move into it, then at that point use a debt service coverage ratio loan to pull cash out of the now investment property. You do not have to show income for a non-owner occupied home like you do for an owner occupied loan.  You could use these funds to reimburse at least some of your cash.