Buying a home with an incorporated business, are we self employed or do I pull a pay check from the business?

Question

We have a business that we incorporated. We are having problems getting approved because we are self-employed. I read an article that says with incorporated business we are actually employees and can pull pay checks (so we would have pay stubs) to show a mortgage broker. We have a large down payment and have a good credit rating for the past 3 years.

Any info about obtain a mortgage would be appreciated.

We need to know if we can appear to be an employee of our company because of the legalities of incorporation. The tax man sees it this way shouldn't the bank too?

Answer 1

Great question. Since your business is incorporated, you can show your income via pay check stubs as a W2 employee. However, you must be able to prove:

- Steady income for the past 24 months using pay stubs, as well as business and corporate tax returns.

- Profitability in the corporation (substantiated by the corporate tax returns) to support the potential for continued income for the next 3 years.

Also, if your business was just recently switched to become incorporated, you would have to use an average of the last two years of net income from your business to qualify.

Hopefully this helps. If you have any other questions, contact me through our profile. I’d love to be of assistance.

Answer 2

Here are the guidelines for the bank I work for:

current paystub and 2 years w-2 (if I feel like asking for them)

2 most recent years federal personal and business tax returns.

We use the income from the tax returns.  If you have declining income we use the most recent year.  I don't care about the P&L, because it's usualy not audited.  If the P&L is lower income than the tax returns, than I do care.