Mortgages in Jefferson Park, Chicago, IL: Self-Employment

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Mortgages in Chicago, IL 60630: Jefferson Park

‘Mortgages in Jefferson Park, Chicago, IL’ because I just arranged for a mortgage loan for a couple who live in that neighborhood. I could have given the zip code, I know: 60630. But that’s not as appealing. ‘Self-Employment’ because one of the borrowers is self-employed.

My clients did not Google “Chicago mortgages” or “Jefferson Park Mortgage Broker” to find me. They found me through their tax preparer. They were looking to refinance their home, a single-family detached house to get a lower rate. Their interest rate was 4.500%. I was able to get them on with an interest rate of 2.875%. It took 13 days from the time they completed the application to the closing; 16 days from the time they first contacted me.

Self-Employment Income and Mortgage Lenders

Lenders have always verified income. Since lenders have figured out that some self-employed people have lost income due to Covid19, they have tightened the rules.

It used to be that they’d look at tax returns and (if you applied between April 1 and December 31, they’d ask for financial statements (at least a profit and loss statement) and verified that that the employment existed for 2 years.

(They verify that self-employment has existed for 2 years by checking licenses, company registration dates, or by asking the borrowers accountant / tax preparer to verify that they’ve worked with the borrower / borrower’s company for 2 years.)

Since Covid19, they want to see the same plus they want to see bank statements that are in line with the profit and loss statements you provide or they want you to provide audited financials.

In my case, the client used his business bank statements to qualify and the deposits reflected an increase in income, so there was no need for audited financials.

(Ready to talk to a Chicago mortgage specialist? Call me at 847-840-8884.)

Self-Employment Mortgages In Chicago

Financial Statement and Mortgage Loans

Financial statements required are: profit and loss and balance sheet. Your accountant or bookkeeper can create them for you. Or you can create them yourself.

The loan I arranged for this couple in Jefferson Park was for a business owner, with company registered with the State of Illinois for over 5 years. Still, the owner did not know what a profit and loss statement was.

A profit and loss statement is a list of your income and expenses. You can search for templates on the internet. To create one for the last year you filed taxes, you can look at your last year’s tax returns and just copy any line name that has a number next to it on your Corporation Tax Returns or on your Schedule C. Next, put in the number from the tax return form next to the name.

Then you do the math.

If you’re doing the math correctly, you’re ending up with the same profit or loss as you had on the tax return forms.

To create a YTD (Year-To-Date) profit and loss, you just put in the numbers you had for the current year.

My client thought he had to put it all he should have earned and all he should have spent. That is not correct. You put it the amounts you actually collected and the amounts you actually spent.

(If your rent is $2000/month, by May 15th, for instance, you should have paid $10,000. But if you paid only $6,000, that’s what goes on the Rents line. What you should have paid is dealt with in the balance sheet… The rent you should have paid but did not yet would go under Accounts Payable, there.)

(Ready to talk to a Chicago mortgage specialist? Call me at 847-840-8884.)

Profit and Loss and Mortgages Are Not Quite The Same Thing as Profit and Loss for Tax Purposes

There are two lines on the tax returns that are treated differently on a profit and loss statement: meals and entertainment and depreciation.

For tax purposes, most companies can deduct only a percentage of meals and entertainment. For profit and loss purposes, the entire amount spent on meals and entertainment is taken into account.

Depreciation is a deduction on tax returns. Since it is not an actual expense (no money leaves your account to pay depreciation), you do not include depreciation on profit and loss statements. (Depreciation is accounted for on balance sheets only.)

Financial Statements and Mortgages

If your bank statements or audited financials show you are getting less income than you used to, lenders will adjust your income downwards accordingly. If the adjustments reduces your income below where you qualify, you do not get the loan. As it should be.

If you’re not prepared to show your business bank statement, make sure you have audited financials. By that I mean, talk to your accountant and make sure they can audit financials (not all accountants can) and that they can do it fast enough for your purposes.

(Ready to talk to a Chicago mortgage specialist? Call me at 847-840-8884.)

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