Are you self employed and denied a mortgage because of mortgages or notes due in less than one year

Self employed and denied a mortgage because of "mortgages and notes due in less than one year"?
Self employed and denied a mortgage because of “mortgages and notes due in less than one year”?

A little known number near the back of a borrower’s business tax returns that can cause a huge issue with a mortgage loan approval is “mortgages, notes, and bonds due in less than one year”.  This figure, which is found on the corporation’s balance sheet, must be deducted from the corporation’s after-tax income since it is not available for distribution because the funds must be used to meet the next year’s obligations. An example of how this could cause a problem is as follows: Buyer owns 50% of an S Corp which reports a profit of $100,000 which means that $50,000 profit(50%) was passed to the buyer’s tax return as income. But, if the corporation has a loan with a reported balance of $130,000, then that figure is subtracted off of the profit which for mortgage calculations would now be a$30,000 LOSS which would then be a $15,000 loss (50%) of income on the buyer’s tax return.  So as you can tell this is a huge difference between $50,000 in income and a $15,000 loss.  Mortgages, notes, bonds payable in less than 1 year are listed on line 17 under Liabilities and Shareholder’s Equity on schedule L for Form 1120. Click here to see what this page of the tax return looks like.

Possible solutions when you have Mortgages and Notes Due in less than 1 Year:

Provide business bank statements proving that the business has current assets in an amount of at least the amount of the mortgages, notes, and bonds due in less than one year.

Provide proof that the loan is now paid in full and written documentation that from the business’ CPA stating that the paid off loan is theone that was used on the tax return

Provide proof that the loan or mortgage is not really due in less than one year.

Often the mortgages and notes payable in less than one year is really a longer term loan

Proof can be a copy of the terms of the loan complete with loan number, creditor name, balance, and payment, and then a signed letter from the business’ CPA stating that this loan number is the one used for the mortgages, notes, and bonds due in less than one year figure

We may be able to use one or both of these ways to not have to subtract this amount from your business income which could save your mortgage loan!  To learn more about qualifying for a mortgage loan when self-employed, read these You’re self-employed, how to be prepared to talk to your mortgage lender and self-employed borrowers and qualifying for a mortgage loan.

If you are self-employed and are looking for expert advice, Contact Team Move today.

Team Move lends in areas such as Wilmington, Leland, Hampstead, Jacksonville, Camp Lejeune, Whiteville, Shallotte, Southport, Elizabethtown, Lumberton, Fort Bragg, Pope Air Force Base, Fayetteville, Rockingham, Raleigh, Garner, Smithfield, Clayton, Goldsboro, Charlotte, Greensboro, Winston-Salem, Durham, Chapel Hill, Burgaw, Castle Hayne, Holden Beach, Supply, Ocean Isle Beach, Sunset Beach, Hubert, Tabor City, Carolina Beach, Kure Beach, Laurinburg, Topsail Beach, North Topsail Beach, Surf City, Sneads Ferry, Richlands, Wrightsville Beach, New Bern, Oak Island, Saint James, Wallace, as well as the rest of NC.  North Myrtle Beach, Myrtle Beach, Conway, Loris, Little River, Longs, as well as the rest of South Carolina and Virginia.

Written By: Russell Smith

Sign up to receive the latest in mortgage news.