Self-employment bank account question (NOT YET QUALIFIED)

[kemari]

I’m still early in the process but I want to know what I’m getting into and looking at to get qualified.

Current situation:

My daughter and I will be co-borrowers. She is W2 (only has 1 year of employment so far). I’m self-employed with a mix of 1099 and cash / online payments.

I’m sole proprietor and have steady ongoing income from a 1099 client as well as other retainer and one-off clients (no 1099s, as it’s not required for virtual businesses to file / supply one).

My issue is, for most of my self-employment (since 2006), I’ve only ever used my personal account. I didn’t know as a 1099 contractor that I would need a separate biz bank account, so I have only used a personal checking account for ALL my financial incoming / outgoing money (personal expenses, rent, business expenses, etc).

I just obtained a business checking account as of this month, so will have no history on it.

I do, however, have many years of tax returns which show steady income, and can provide the 1099 / online payment reports, and tax returns to show all of this income.

So my question is: will this disqualify me and/or how will it affect us becoming qualified?

As a side note, based on the mortgage calculator, together my daughter and I would qualify for a $180,000 mortgage, but I’m not sure that’s accurate since I don’t know if it will be my tax returns used, my bank account deposits (accumulative), or my 1099 that will be used. Any help???

[TTrumble]

Hello kemari,

Commingled funds (business and personal in the same account) can be complicated, but not impossible to work with.

First and foremost, you will need to go through all of your bank statements for the past twelve months and sort out each business transaction, marking each business deposit as “BD” and each business expense as “BE”.

Second, all cash income MUST be deposited in the bank account to be considered for inclusion as income and for calculating affordability. Any cash payments that you may have just stuck in your pocket for routine expenses, etc. becomes invisible. It must be trackable or else it doesn’t exist. Not just for income, but in general, remember the phrase “If you can’t prove it, you can’t claim it.”

Your biggest problem is income for which there is no 1099. Long story short, having both 1099 and cash-for-services income is okay, but it’s going to be complicated as you are going to have to clearly show which is which on the bank statements as well. It’s actually pretty rare for a self-employed person to have both, and it’s going to have to match up with your tax returns.

Regarding your daughter, we do require a two-year work history, with one exception. If she was in school, a training program or some similar means of improving her situation previously and now has a 12-month work history, we can include her income.

Long story short, it’s going to be complicated for you, and you may have to make some adjustments in how things are done, but if you stick with it and follow your counselor’s instructions, you will eventually get approved. It may take a while depending on such things as the specifics of your daughter’s situation, how you have handled cash income, and so on.

It’s pretty clear you are going to have to put in more work than most, and it won’t be easy, but if you have the dedication to put in a the effort and stick with it, we will stick with you until you are jingling the keys to your new home.

Don’t be afraid to lean on the Forum family here for help and advice when you need it, or even when you need to vent a little. This has become a pretty amazing community over the years with a lot of people at all levels in the program sharing their experiences, advice and support with each other.

Tim Trumble
Online Operations, NACA
ttrumble@naca.com

• This reply was modified 9 months ago by TTrumble.

[Stiladam]

I’m in the same boat, I’ve always commingled my business and personal expenses, so I’ll need to clean up my act in that regard.

Question @TTrumble

Not planning on purchasing until 2021, so can I clean up and separate my business and personal finances for 2020 and I’ll be good to go for 2021, or will I have to go back and fix up 2019 as well?

TIA for the response.

[Author]

Posts