High Income & No Debt, But No Bank Loan

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High Income & No Debt, But No Bank Loan

Justin Madison
Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes

I have a friend I’m trying to help. He owns his own business and makes good money, $200-$300K per year, but he also has many tax write-offs so he shows a much smaller yearly income on his tax returns. His dilemma is he is trying to buy a primary residence in Idaho for about $600K but can’t qualify for that large of a bank loan unless he shows about $180K of income in 2022. He made more money than that, but it would be a large tax hit for him because he would have to pay all the extra tax on that income instead of using his write-offs. I’m trying to help him find a creative loan solution to keep him from having to show all that income and pay all those taxes, yet still get a loan. He is desiring to buy a house in the next 30-60 days. Any thoughts?

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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y

Creative finance is what everyone should be targeting right now. This is a perfect candidate for that. 

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  • David Bilandzija
    Lender · Venice, CA · Member since 2021 · 189 posts · 132 votes
    3y

    @Justin Madison bank statement loan programs are ideal alternatives for credit worthy self-employed borrowers.  Borrowers generally furnish 12-24 months of bank statements and a statement from a tax preparer/CPA. 

    3Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    How much does he qualify for and if he's making that much money, can he put more money down on the house?  He may be able to find a private lender who will lend him more, but at a higher rate.

    2Reply
  • Jim Duncan
    Banker · Tampa, FL · Member since 2023 · 39 posts · 19 votes
    3y

    I would second what David said above, bank statement or alternative income loans are the way to go. There are a ton of options, and I'd say your friend can most likely get a great mortgage.

    The problem with being able to immediately answer the question above of "how much does he qualify for" is that a bank's underwriting department would have to actually look at his bank statements to determine that. We have around 170 different wholesale lenders we're partnered with for instance, and many of them can have different ways they determine the qualifying income from bank statements.

    Additionally, depending on the details of his situation, it could be better for him to go through a lender who only requires one year of bank statements as opposed to two (it can vary what is required) or even work with a lender who only requires a profit and loss statement to be compiled by a CPA rather than actually looking at all the individual bank statements. Often, there are self-employed loans that will require only a 10% down payment, but as with all lending, his terms will most likely improve with the greater down payment he is willing to make.

    In short, your friends' situation is very possible to get great financing for, but it's probably the most "complex" type of scenario to give immediate quotes for, as there are so many variables that depend on what actually shows up on his documentation. Feel free to DM me, or have him reach out, if I can answer anything more specific.

    2Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    Creative finance is what everyone should be targeting right now. This is a perfect candidate for that. 

    4Reply
  • Chris Davidson
    Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes
    3y

    @Justin Madison what part of Idaho. Sounds like he needs a more experienced lender if he has the tenure with his business. Underwriters can add back quite a few write offs and use a higher number than what you report on taxes as they know some of these aren't true expenses: ex depreciation for investors.

    But like @Eliott Elias we are seeing good results with creative deals right now in our market.

    Best of luck and have him reach out if he wants some more info.

    2Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    3y

    @Justin Madison..he needs to find a better mortgage broker or lender, who knows non-QM well.  A good mortgage broker should be able to take him going bank statement (12 months personal OR business, wherever all the money is is how I'd do it, and don't even collect Tax Returns.  If this was in CA, I'd recommend myself, but since it's in ID, have him find someone solid.  If you need a referral, reach out.

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  • Julie Gates
    Real Estate Agent · Savannah, GA · Member since 2018 · 123 posts · 141 votes
    3y

    If he has great credit and a high income, a seasoned lender can see the income before tax credits. He needs to work harder on that, which is what everyone is saying. However, I didn't read that he had amazing credit. No matter what your income, a credit score above 700 really helps.

    1Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    3y

    With all due respect, just because you can see the high income before write-offs doesn't mean you can use them.  When going Freddie/Fannie conventional, you have to utilize the tax returns and there are certain ways to calculate and you can't divvy from those.   What he's saying is that his friend doesn't want to file as much income because he'll likely owe a lot more than he normally does, which is completely normal when you deal with self-employed and investors all the time.  So he needs a more creative way of income calculation - i.e. bank statement or some other type that would work WITHOUT TAX RETURNS. 

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  • Kelly Maleaht
    Edinburgh · Member since 2023 · 2 posts · 1 vote
    3y

    One option could be to look for a lender who offers a stated income loan, which allows borrowers to state their income without providing extensive documentation. However, these loans often come with higher interest rates and stricter requirements.

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Justin Madison- thanks   1) have him complete 2022 returns  so that the net income is as high as possible   ( even if this  requires him to pay the higher tax amount )  ....many lenders can use a  single  year of returns to make a loan decsion if the  borrower has been  in same compnay / field  for awhile and  he doesnt  have to continue to  prepare returns this  way in the future    2) can you locate a relative or friend to be a co borrower ?  3) looks for a  low doc / bank statement type program  ( might be tough at the  high 85% ltv)  

    0Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @David Bilandzija, thanks for the good advice. Looks like mostly everyone else agrees with your good advice. Appreciate it. I apples this thread along to him and it was really helpful as he didn’t know about this type of loan option.

    0Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Theresa Harris, he said he would prefer to keep the down payment mower to keep more cash in his business. Seems like the bank statement loan is the way to go, as many recommended. Thank you.

    0Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Jim Duncan, thanks for Al the great info and support. I know he is trying to keep his down payment lower to try to keep more cash in his business, but perhaps he would be flexible on this if the numbers made sense. I passed this thread along to him and he said it was really helpful, so thank you for your contribution.

    1Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Eliott Elias, thanks for the affirmation. That’s helpful.

    0Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Chris Davidson, he is in Nampa. Sounds good, I passed this post on to him so he can reach out when he is ready to explore these new options. Should be very soon from what he said.

    1Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Jared Rine, thanks for the support and good info. Appreciate it. I passed this thread along to him so he can reach out when the time is right.

    1Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Julie Gates, yes he said he has above 800 credit score so he’s good there too.

    0Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Jared Rine, your understanding is correct, thank you.

    1Reply
  • Justin Madison
    OP
    Rental Property Investor · San Jose, CA · Member since 2015 · 57 posts · 12 votes
    3y

    @Dave Skow, he is trying to avoid having to pay all the taxes. He has been making good income for years. Judging from the other posts, it seems like a bank statement loan would be the proper option so he doesn’t have to claim the higher income and pay all the extra taxes. Would you agree?

    0Reply
  • Thomas Tsitouridis
    Investor · Astoria, NY · Member since 2016 · 46 posts · 21 votes
    3y
    Quote from @Justin Madison:

    I have a friend I’m trying to help. He owns his own business and makes good money, $200-$300K per year, but he also has many tax write-offs so he shows a much smaller yearly income on his tax returns. His dilemma is he is trying to buy a primary residence in Idaho for about $600K but can’t qualify for that large of a bank loan unless he shows about $180K of income in 2022. He made more money than that, but it would be a large tax hit for him because he would have to pay all the extra tax on that income instead of using his write-offs. I’m trying to help him find a creative loan solution to keep him from having to show all that income and pay all those taxes, yet still get a loan. He is desiring to buy a house in the next 30-60 days. Any thoughts?


    I’m in the same boat. I own a construction company, so what I looked into and found would work for me, and likely for your friend, it’s some thing called a bank statement loan. From my experience not a lot of lenders can help with this, but can refer one for you if you DM me. They essentially look at money, going into the business and use that, at a higher rate, to give out a loan. But if they get a property that you can value at you can always cash out refinance later. Hope that helps. 

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Justin Madison- thanks ....if he is adamanat about not wanting to pay higher income taxes  -  and  if he doesnt want a co borrower - the  bank statement type loan will be  his best option ....fyi - this program wil have a much higher  interest  rate and loan fee   and  will  likely require a much larger down payment .......He might  want to compare the the higher interest paid for a bank statement loan to the  interest  of a " normal " full doc loan  to  whatever the  additional income tax might be .....eg.....assuming a loan amt of 570K  ( 95% ltv)  which I dont think is possible on a  bank stmtn loan  ..at a  6% 30 yr fixed normal loan - annual interest ~$34k  and at a 9% bank statement loan annual int ~51K  whihc is approx 17K  more in interest a yr ......assuming he has the loan for 3 yrs ..thats  approx  51K  higher interest  

    1Reply
  • Tyler Warrick
    Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes
    3y

    Love these scenarios! It's all about numbers, and breaking it down easily. There is always a loan available. The question is simply: does it make sense?

    If your friend makes $200-300k/year, and they claim all of their income (no write offs) -- they are either in the 24% or 35% federal tax brackets (unmarried/married). 

    Non-QM loans such as: Bank Statement, Asset based, P&L etc offer rates anywhere from 1-2% higher than conventional.

    Easy equation. But first, let's break down the constants: $600k purchase price, 20% down (assumption), 6.5% rate (assumption)

    Conventional -- Year one interest paid: $31k plus whatever tax implications from scenario above (+$48k in the smallest example)

    NonQM -- Year one interest paid: $41k (paying no taxes -- assuming your friend continues to write everything off)

    Let me know if you have any other questions.

    1Reply
  • Kelly Maleaht
    Edinburgh · Member since 2023 · 2 posts · 1 vote
    3y
    Quote from @Kelly Maleaht:

    One option could be to look for a lender who offers a stated income loan, which allows borrowers to state their income without providing extensive documentation. However, these loans often come with higher interest rates and stricter requirements. Another option could be to use a paycheck generator to create pay stubs that show a higher income than what was reported on his tax returns. However, this could be considered fraudulent and carry serious consequences. Ultimately, your friend needs to work with a financial advisor or lender who can help him navigate this situation legally and ethically. Best of luck to him!


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