Recently Self-Employed: What income do lenders look at

[Don Pham]

Hello!

TL:DR What income do loan officers look at? Total, Adjusted Gross, or Taxable Income?

More in-depth: Should I file as sole-proprietor and reduce my tax liability by reducing my adjusted gross income (pays more SE tax) or should I file as S-Corp. Total taxes paid comes out about the same, but in the former case, I would have to contribute a lot to an individual 401k to reduce my AGI.

I was recently downsized from my job a few months ago, and as such, I've been informed that I will not be able to use my past W-2 income to qualify for a mortgage. I am also not interested in finding another job in the same profession/industry as 1. I believe the industry is dying and 2. There are more fulfilling things I would rather do. I am currently earning unrelated (to my previous field and real estate) business income and would like to reduce my taxable income as much as possible without severely hurting my ability to get a conventional loan. My pickle for this year is that my W-2 income at my old job was fairly high, raising my tax liability without helping me qualify income for a loan. Next year will be a different situation. I understand that the best answer probably depends on my specific situation, but I wanted to see from those who are more knowledgeable which the better route would be.

Thanks!

[Russell Brazil]

I'm self employed and I purposefully do not take all the deductions I am able to take because I want my income to remain high for borrowing purposes. I do not use any entities to lower my tax liability. If you want to borrow at high levels you need to pay tax at high levels unfortunately. Can't have your cake and eat it too. I can't Tag them as I'm on mobile but @Chris Mason and @Upen Patel are both loan officers who could speak to the specifics of what lenders are looking at.