Hoping one of the lenders or realtors can help me here. I have previously purchased all our homes as a w2 employee. Very simple. Looking to buy something new or possibly build in next 18-24 months depending on how 2020 finishes off.

Now I own a private practice PT clinic with 1 partner. We pay ourselves a low base salary (w2) and then pay ourselves quarterly distributions. We have been in business 3+ yrs, so by the time move happens should have 5 years of taxes with stable/growing income. How will a lender calculate my income for mortgage purposes? To keep it simple- say I have $75k on my w2 and $75k on 1/2 of my k1, but I only distributed myself $50k from the llc. Does lender count this as annual income of $75k? $150k? $125k?

Should I up my "salary" for a year and pay those extra taxes? Any other advice to help myself when we are ready.

If you have two years of K1 you should be fine. If you want to play it safe distribute for the next year. It gets very complicated and no way to know all the details. Mostly a paperwork issue if you sending mountains of tax forms.

Ok. Thanks for the info. If Im trying to figure out my debt to income ratio. What part of the K1 will they consider for the income part?

Sorry I'm not a great resource for self employed income. Just too many variables for a forum. And the market has become even harder for you guys.

As for DTI gross income, which for you is complicated and minus minimum credit report debt. So mortgage, installments, min credit card payments. Nothing else. Need to be 50% or less depending on credit score.

Ok. No worries. Im generally getting the response of "wont know until we try it". Between health insurance and this, self employed is a joy. I just dont want to sell my current house only to find out I dont qualify to even buy it back.

You won't do that. I'd prequalify based on actual data and let you know upfront.

Just saying what Steve is saying differently...Lenders can let you know before you sell your house, but they can't do it with the level of detail you can provide on a public forum. You'll need to provide them with some details but they can definitely give you a thumbs up or down before you sell your other house. With lending, the devil is always in the details. Good luck.

Thanks yes. In this case I would want full two year history of income including W-2s, tax returns, any misc. IRS documents for review before sending a pre-approval letter.

Thanks for the replies. I do realize I can get pre-approved and will of course do that when the time comes and I realize it is difficult to generalize in forum, but just looking for any advice on how to set myself up for success/smoother process.

My experience from a borrower side having been W2 from a businesses I own along with K1s from same businesses, what has been mentioned above regarding all your paperwork being in order is key and that any lender you will want to work with should be able to give you feedback immediately from a prequal application.

What I would add is that the more "normalized" or consistent your business income, salary and partner distributions are year over year will be a huge help in getting the underwriter comfortable and through the process.

In my case, I was winding one business down, started two others and had a 4th that was started in prior 3 years. Plenty of income and assets to support the loan, but the process was complicated by the business transitions and I submitted over 100 documents and 500+ pages of information. I cannot imagine anyone ever reviews it all but they checked their boxes.

Morale of story. Have your business income and distributions consistent year of year. Be prepared to produce samples of last weeks used toilet paper if they ask. Non W2 or other self-employed income makes the loan process more complicated. More so if you are pursuing a nonconforming loan.

The general guidelines is take two year history. If the latest year is higher then the second average both years. If the latest is lower use the lower income. Why my first post was increase distribution even though taxes suck.

I would briefly add that after reading many of SteveBott's replies, he is probably one of if not the most helpful on this board.

Thanks all.