# Plenty of equity. A tax return that says no.
If you own a business, there's a decent chance your house is worth far more than your tax return suggests you could ever afford.
That's not a contradiction. It's the tax return doing its job.
Why the return comes out small
A tax return shows what's left after every deduction you're entitled to take. Run the business well, take the write offs correctly, and the return shows a small number. That's the point of it.
The problem starts when you try to use your equity. A conventional lender reads that small number as your income, measures your payments against it, and the math fails. Often not because the payment is out of reach. Because the document you handed over was built to minimize exactly the number the lender is checking.
Other ways to document the same income
The tax return isn't the only way to show a lender what you earn.
Bank statement programs look at what actually comes into your accounts, usually over 12 or 24 months, instead of what's left after deductions.
Deposits aren't income, though, and this is where people get surprised. Transfers between your own accounts come out. Loan proceeds come out. And on business accounts, most programs apply an expense factor, because some of what comes in, the business still has to spend.
For most business owners with real write offs, the qualifying number lands in the middle: lower than the deposits, higher than the tax return.
And some home equity lines don't ask for tax returns or pay stubs at all. They verify income another way, which can matter a lot for someone whose return understates what the business actually produces.
The number worth knowing first
Whichever path fits, the number that decides the file can be estimated before you apply. The deposits, what gets excluded, the expense factor, the payments already on your credit. None of it is hidden. It just usually gets calculated by an underwriter after the application instead of before.
It's the difference between applying with an answer and applying with a hope.
--- *Author: Chad Villacorta, mortgage broker at West Capital Lending (NMLS #2636410). Licensed in 34 states. Estimate only, not a loan commitment. Subject to credit approval and underwriting.*
Subject to credit approval and property qualification.
West Capital Lending | NMLS #2636410 | Subject to credit approval and property qualification.