You can’t be both if you’re trying to get a loan to buy a home in Mission Viejo, Rancho Santa Margarita, or Coto de Caza today. Why would someone try to pretend that they are something they are not? Well, money, for one. As in the polar opposite agendas of how to hang on to more of the money you earn vs trying to minimize the amount of money you make to avoid paying one penny more than you owe in income tax. 95% of companies in Orange county have fewer than 50 employees, which represents a glut of sole proprietors and small businesses. Correspondingly, many aspiring Orange County home owners are stuck between a rock and a hard place. Let me paint the picture for you. Kindergarten style.
You have a small business. You incur expenses in running said business. You deduct the business expenses from your gross income to come up with a taxable income. Then you calculate your tax payment based on your adjusted income. Some people incur humongous expenses in order to make their business earn profitable. Leaving very little for the IRS to tax. Some people pour every single penny into their business in order to get it to grow bigger. Some people even run their business at a loss – meaning it costs them more than they make to keep the business alive and get it to thrive. Now I am not a tax account or a CPA, so I am not qualified to give you advice in these areas, but I do know what it takes, in general, to qualify for a loan to buy a home in Orange County these days. That’s kind of an important part of my job, as it turns out. And here’s how it works.
It takes income. Document-able, traceable income. As substantiated by pay stubs and bank statements. And, wait for it, TAX RETURNS. Yep. Lenders these days are really picky on this point. They need to see not only that you got paid, but what you did with the money and how much you have left over to pay your mortgage. So are you a Rich Man or a Poor Man. Rich Gal or a Poor Gal? Rich Family or Poor Family? Here’s the big finale – you can’t show the IRS that you have no money for the government to tax and then turn around and show a lender a different set of books. You can’t be Poor Guy according to your tax return, and then be Rich Guy to the mortgage lender. This is as polarizing as Coke or Pepsi? Ginger or MaryAnn? Tom or Gerry? Roadrunner or Coyote? Beatles or Stones?
So don’t be surprised when the Lender asks for your complete set of tax returns. For the past two tax years. Your personal return – including Schedule C. Your spouses return, if you file separately. And the return for your for your LLC, S Corp or C Corp. These are all part of your financial picture and important to the banker who’s considering loaning you money. Because they want to be pretty dang certain that you have the means to pay them back in regular monthly installments. For the next 10, 15, 30, or 40 years. Till it’s either re-financed into another loan or until you (or your estate) pay the money back. Pretty simple, right?
I’m Leslie Eskildsen. Just keeping it Real in Orange County Real Estate – especially in Mission Viejo, Coto de Caza, and Rancho Santa Margarita.
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