Applying for loans having no luck

[Rich Hupper]

I have been an independent contractor for 7 years. each year i write of most of my income. i never realized until recently this severly limits what a lender can give you. should create an llc or some other identity and start passing all my income through that? i do not own anything right now i am just renting.

[Chris Mason]

Hi @Rich Hupper,

If you tell the IRS you make $0, and you tell a lender you make $150k, you're either lying to one, or lying to the other. So it's mortgage fraud, or tax fraud, take your pick. 

I'm not judging you here: Probably 80% of self employed people lie to the IRS, and then have this moment of realization that you are having now when they decide to get into real estate. 

So, go get honest with Uncle Sam, and then Aunt Fannie Mae will like you.

A good lender will be able to write some smiley faces on your tax returns, indicating things that you can write off to your heart's content to save on taxes when you next file, that simultaneously a mortgage lender can  turn around and "add back" to your income to qualify you. 

Depreciation is the most commonly known one. So walk into your CPAs office with a giant list of all the equipment you own for your business, and ask what can be depreciated. Jack hammers? Electric table saw? Et cetera. All that stuff depreciating will minimize your tax burden, and then as a lender I can go ahead and add that back to your net income number before I divide it by 12 or 24 to establish monthly qualifying income. So it's a double win: If you have $12k in depreciation, that's $12k in non-taxed income, and simultaneously I can add $1k/month to your mortgage qualifying income.

Above this post, I see we have a real estate agent in this thread. For agents, it's miles driven that is their saving grace. REI that are also RE Agents should (and many do) track every single business mile they drive and depreciate the bejesus out of their cars. Boom, $0.22 per mile added back to income.