Schedule C or Adjusted Gross Income for Mortgage Qualification?

5 Replies

For conventional mortgage financing for us that are self employed and also use a Schedule C, do lenders consider your AGI as well or are they more/only concerned with the numbers on your Schedule C?

Thanks!

They will look at BOTH. They will take the sch C and all other incomes that feed into your AGI... but then they will add back in any "depreciation" and "depletion", I forget the exact lines these are on, because they are what is called "paper losses". BUT BE WARNED!!! they will also disallow income if you haven't been getting it for 2 or 3 years, depending on the type of income and how stable the income is. Also any drop of 10% or more in any one category will have to be explained.

Calculating income has become very complex and you need to work with a good loan officer to be sure you are getting a fair accounting of all your income.

15 years as a loan officer speaking... thankfully a full time real estate investor now!

@Judah Hoover Thank you for this information!  I was curious because according to my local credit union, they'll only consider the Schedule C income even if I have W2 income.  Seems strange that any earned income will be disallowed for the purposes of qualification.

The best part about dealing with a credit union is they can do what ever the heck they want... the worst part about dealing with a credit union is they can do what ever the heck they want.

(with in reason of course)

@David Martin

Line 13 on the sch. C is depreciation that you can add back in. Also the adjusted income is line 12 on the 1040 (it's also at the bottom of the sch C, line 31 maybe)

We dont use AGI because AGI can be misleading with with "actual cash flow," lender is concerned with cash available to actually pay back a loan thats why like someone above me mentioned that non cash losses or what I like to call Phantom losses are added back for the purposes of qualification.

If your W2 is disallowed then the "consistency," of your W2 income by not be solid so that is why it may be disallowed. It may also be part time W2 perhaps, or W2 income with out 2 years track/history, or is so volatile, based on 100% commission, or bonus, or other variable nature that the CU's credit policy has completely negated it.

I doubt if your W2 income was full time salary for 2+ years with the same company that it would get negated, as an example.

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