S corp and your income for mortgage application

by stepiw
8 replies
Say, you incorporated as S Corp and your company is making 100K/year, and you're paying yourself 20K an year. As a self-employed, you have to show your tax returns for loan application. For the purpose of that application, how much income are you making? 100K or 20K? Can you somehow make it work that your income would be the full 100K for that application?
#application #corp #income #mortgage
  • Profile picture of the author JonPKibble
    This would be best answered by a CPA. That being said, I am not an accountant, but here is my understanding of the matter:

    Unless you are applying for a mortgage in the business' name, then only your personal income of 20K would count.

    You're going to need to draw more money from the business in order to pay the mortgage anyway. So the way you'd make it work is by paying yourself a higher salary.

    Again, IANAA, but that's just my 2 cents.
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  • Profile picture of the author Steven Miranda
    Again, I am not a CPA but I recently bought a house and also have an s-corp. Only your taxable income will be considered so whatever you pay yourself and whatever the IRS shows as income. They will pull transcripts directly from the IRS since you are self-employed so there is no way around it. You can increase your salary and or give yourself a bonus which is taxable income.
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    • Profile picture of the author bengirwb
      If you're paid a salary by the S Corp, then you're not self employed.
      You're employed by S Corp and your salary is whatever S Corp pays you.
      Want more income to show for the mortgage, get S Corp to raise your salary.
      Heck, take S Corp's total income as your salary, then make a personal loan back to S Corp
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  • Profile picture of the author Tsnyder
    I'm confused as to what you've done. An S Corp is nothing more than
    a conduit for income. It has no tax liability. All S Corp profits flow to
    the shareholders who pay tax at the personal rate. How is it that your
    S Corp makes $100K in profit but you only show $20K in income?

    Something isn't right here... you need to consult competent professional
    advisors before you do something that will create a much larger problem.

    Here's the IRS info on S corps...

    S Corporations
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  • Profile picture of the author jasondinner
    I went through this when I bought my first house a couple of years ago.

    Jumped through A LOT of hoops to get approved for the mortgage, but made it through on the other side.

    I'm not a CPA, but although you're salaried for $20K, if you spend any more of your earnings from your business in your personal life, that is considered personal income as well.

    It's looked at more like an "officer draw." My company is an S Corp by the way.

    I made it work. In NY, at the time, my mortgage guy told me I needed to show 2 years of over $90K.

    However, if you already filed your tax returns for the last 2 years, and all you paid in personal taxes was on $20K, you may have some challenges.

    Not sure how far "stated income" will go these days and wherever you may live.

    Expect to be required to show lots of bank statements to prove you make what you say you're making.
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    • Profile picture of the author stepiw
      Originally Posted by jasondinner View Post

      I went through this when I bought my first house a couple of years ago.

      Jumped through A LOT of hoops to get approved for the mortgage, but made it through on the other side.

      I'm not a CPA, but although you're salaried for $20K, if you spend any more of your earnings from your business in your personal life, that is considered personal income as well.

      It's looked at more like an "officer draw." My company is an S Corp by the way.

      I made it work. In NY, at the time, my mortgage guy told me I needed to show 2 years of over $90K.

      However, if you already filed your tax returns for the last 2 years, and all you paid in personal taxes was on $20K, you may have some challenges.

      Not sure how far "stated income" will go these days and wherever you may live.

      Expect to be required to show lots of bank statements to prove you make what you say you're making.
      Did you get approved by just showing bank statements without having $90K+ on tax returns?
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      • Profile picture of the author Steven Miranda
        Originally Posted by stepiw View Post

        Did you get approved by just showing bank statements without having $90K+ on tax returns?
        They will pull tax transcripts directly from the IRS.
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      • Profile picture of the author jasondinner
        Originally Posted by stepiw View Post

        Did you get approved by just showing bank statements without having $90K+ on tax returns?
        I showed $90K and $110K for both years so it wasn't an issue.

        The bank statements they kept asking for was to show proof that I was still earning enough money to be able to cover a mortgage for a $500K+ home

        Like I said in my previous reply, any corporate money you spend for personal use is considered an officer draw and should be counted as personal income.
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