Self-Employed Income Verification Question

jdlegall · Joined: 29 Sep 2008 Posts: 23 16.62 Dollars($)

Hello All,

Thought I would say hi before I jumped into the questions I have. Wink

I am self employed with $5000 per month income. My partner is also self employed and makes around $5000 per month. Our combined household expenses are $2200 per month. My FICO score is 606 and his is 584. I have $7200 in debt at the moment which will be reduced to $4500 by Oct 2008 when my report adjusts. My credit score may be around 680-700 by Oct 2008. My partner owes around $45k in debt from his divorce where 4 vehicles were repossessed and medical bills.

We would like to get our documents in order within the next 12 months in order to apply for a Full document loan. I would like to be the one applying for the loan and my questions are:

1. Will I have to state full household expenses or half our household expenses in my P&L Statement?

2. My gross income is around $65k this year; will the lender use my gross income or my net income after expenses?

3. We have a joint savings account; will all the money in our savings account be counted or just half? Should we take his name off?

4. Will business expenses count in the calculation of DTI?

5. Is 12 months of bank statements enough?

Edit: We are in NJ looking to buy in PA. Properties within 60 - 99K range.

Thanks,

Jodi

smithsussane · Posted: Mon Sep 29, 2008 10:29 pm Post subject:

Hi jdlegall!

Welcome to the forums!

In case of a "full doc loan", income verification is very important. As you are self employed, you will have to submit the profit and loss statements and also tax returns for the current and previous two years. Additional income like overtime bonus, social security, commission, passive income, veterans benifit ects should also be mentioned.

Your total income in a year will be considered for a full doc loan. As far as I know, you will have to mention the full household expenses but it will be better if you could consult a qualified mortgage broker for this. Bank account details are essential and as you have joint accounts with your partner, you should write. Do not transfer them now. If the lender asks then you can transfer them.

Sussane

gmakerley · Posted: Tue Sep 30, 2008 10:22 am Post subject:

P&L's are generally worth the paper they are written on. the likelihood of it being used is nil, unless it's an audited p&l - a very expensive proposition. what makes you think your score will leap from 606 to 680+ in the space of a month? are you a credit bureau executive?

i'm not sure about the question of household expenses - not usually relevant to mortgage lending. as for income, your lender will be looking at your most recent 2 years' tax returns and calculating net income for consideration.

a joint savings account is accessible to both parties, so all funds would be considered. business expenses would not be considered in calculating your ratios. taking your partner off the bank account wouldn't be worthwhile. i don't know what you'd use 12 months of statements for - usually you only need the most recent 2 months' statements. of course, there may be more there than meets the eye.

since your intent is to purchase within the next year, it would make sense to eliminate as much debt as you can. if your partner can eliminate his debts and bump his credit score a fair amount, then it would make sense to apply jointly. however, if he is troubled to the extent that there isn't much chance of paying off old debts, it would probably be beneficial to you to apply as an individual.

jdlegall · Joined: 29 Sep 2008 Posts: 23 16.62 Dollars($)

smithsussane,

Thank you for your reply. I was indeed told that being self-employed I should immediately expect to show more documentation that regular folks.

gmakerley,

Thanks for the reply. I plan on applying as an individual with my 2 years of tax returns and bank statements as proof of income.

I attended a mortgage seminar where I was told that I would need 12 months of bank statements in conjuction with 3 years of tax returns to verify my income. Along with a signed IRS Form 4506 to verify the income on my documents with what the IRS has on my file. All due to the current credit lending restrictions? My credit score should also be a 720 or better. It should be in that range within the next 12 to 18 months.

As for paying down my debt, I will have only $4500 of debt left on my credit report and the only credit card debt that will be shown on my report are the balances on my open revolving accounts. Which are under 10% utilization.

If no other information changes within my credit report and my final batch of credit card debt updates to zero I should see an increase within 30 days from now. I'm not a credit bureau executive, I just know what is in my report, what is going on with my credit and what will weigh with the scoring calculations.

Edit: I was also told that my gross income on my tax returns is what would be considered as income but was not sure if that was correct since the lender I was using (who went out of business) said it was net income.

Two questions:

Does gross income and net income consideration vary by lender?

And does anyone approve a mortgage under $70k anymore?

gmakerley · Posted: Tue Sep 30, 2008 12:01 pm Post subject:

i was being facetious about the credit agency executive thing.

if your income is sufficient to carry your debt - and based on what you've said, it ought to be - then i don't understand why anyone would want 12 months bank statements or 3 years tax returns. that's not to say that it couldn't become a requirement tomorrow (or an hour from now, for that matter).

a credit score of 720 or better might still cost a few pennies, but not much. at this time, however, all else being equal, you'd pay a penalty for low score, but it would seem that a fully-documented loan would be feasible anyway.

i really have my doubts about a dramatic increase in score within a 30 day period, but if so, great. if not, you are apparently on a waiting timeline anyway.

jdlegall · Joined: 29 Sep 2008 Posts: 23 16.62 Dollars($)

Which is why I say may and should not will. Very Happy

That estimated score is a best case scenario. It should be within a 10 - 70 point increase depending on whether the information in my credit report changes +/- or stays put.

I do have 12 months of waiting so by then I will have most paid collections from 2yrs and few from 1 year; hopefully no overdue debt if I do settle the $4500 repossession.

I just want to make sure I have everything set up now so that I am prepared when it is time to apply for a mortgage. Don't want to miss a thing.

jdlegall · Joined: 29 Sep 2008 Posts: 23 16.62 Dollars($)

Still working on the credit score. My credit cards have not reported yet but I did call a few of the collections agencies that I paid at the beginning of the year and had them agree to remove the files.

I was speaking to someone on the FICO board and they were denied a mortgage with an 806 score and a nice chunck of income. About 100k yr? Whew. If that's not tight lending then I don't know what is.

Anyone have any ideas of when this credit crisis will let up or do you think this is how it will be for the coming years? I'm crossing my fingers in hope this is not a permanent thing.

jerry · Posted: Wed Oct 15, 2008 2:11 am Post subject:

Hi jdlegall!

Do not get frustrated. I feel things will get better but it will take some time. You have to be patient enough and bear it. Even I am keeping my fingers crossed and hoping for the best.

Thanks,

Jerry

jdlegall · Joined: 29 Sep 2008 Posts: 23 16.62 Dollars($)

You are right that I should not get frustrated. I got great news today from Equifax to the tune of a 28 point increase! Very Happy

So my new scores are:

Old: TU 665 EQ 588 EX 607

New: TU 665 EQ 616 EX 607

Total increase since February 2008 = TU 91 pts EQ 103 pts EX 70 pts

I may not be ready for a mortgage now but man, when I am I should have no problemo with the FICO score part of it. Im expecting another double digit increase on all three soon but it's like pulling teeth with Cap One. Rolling Eyes

Thanks for the pep talk. Gotta go celebrate. Laughing

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