1 year tax return for conventional mortgage

4 Replies

A few weeks ago I left my w2 job of 7 years to start my own electrical contracting company. My biggest concern is showing enough INCOME for 2017 (when applying for conventional mortgages in 2018) to be able to qualify for mainly cash out refinances (BRRRR proerties). I am projecting $30-40k for the remainder of 2017 which is not enough to qualify for a $400K mortgage.

I do have personal capital I would like to invest into the company mainly to show higher income for the year in order to meet the financial requirements for a $400k home.  Is it possible for me to invest say $40k into the company and show it as income? I realize i would pay income tax on this but I am OK with that given I potentially could pick up two rentals next year.

You putting capital into the company will show as a capital contribution/equity. 

Not income. 

I'm not an expert on the mortgage approval side. But you putting money into a company won't make it appear more profitable. A good broker will be able to differentiate the two I believe. 

I agree with Natalie. Also, you would need a non conforming loan, Fannie and Freddie would require two years of self employed income to be used anyway. (One year if the business has been open for 5 or more years, in some cases) 

A little trick I learned from doing an IRA conversion from traditional IRA to Roth counted as income for the year. The bank would not give me credit for having cash in the IRA until it was removed and was taxed.

You could convert a traditional IRA to a Roth or maybe take a distribution and put it back within 60 days and not really pay any taxes especially if you did it in mid November or December andpit it back in January

 That made no sense to me but the bank gave me the credit for one year because I did the conversion that year but not the second year. Check it out and see if it works. The bank regulations are somewhat screwy for business owners as well as real estate investors so you are starting with 2 strikes good luck.  

@Jason H. Given your change in income source, you will need to season it for 2 yrs to get a conventional loan. You might be able to get a portfolio loan with 1 yr self employed income, and then refi into a conventional once your income has seasoned.