Do Self-Employed Borrowers Deserve “Special” Loans?

I recently came across this post online about the prospects of self-employed borrowers being able to secure financing in the current market climate:

A while back I discussed how I felt that the credit pendulum had swung too far, and that self-employed borrowers are bearing the brunt of it. One originator correctly wrote, “I disagree strongly. Many self-employed people have no problem getting a mortgage. The self-employed people who now have a hard time getting a mortgage are the tax cheats: if a person wants to not report all the cash earnings or fictitiously create expenses/deductions that don’t exist for the sole purpose of not paying Uncle Sam, then I revel in the fact that they can’t get a mortgage. Until they pay the same percentage of their gross income into the tax man’s coffers as I do – let ‘em rent!

I sent this out to a couple of self-employed friends; and their responses were interesting, to say the least. Below is my favorite response. Please feel free to post your own response.

Well, I don’t agree.

The jump in logic to call people who don’t fall within “qualifying ratios” after tax deductions to be all tax cheats is silly.

The easiest to understand example would be my car. I can LEGALLY write off MORE than what I actually spend on my car as a business expense, because I drive an old reliable paid off car. The IRS allows me to choose a mileage average deduction to be easier on THEM in processing returns. Everything is above board – no cheating, yet my adjusted income is LOWER that what is truly experienced in my personal day to day cash flow. I have to qualify under the same back end ratios as someone who can’t deduct any of their car expenses.

Legal deductions affect my qualifying even MORE significantly on how my rental properties are handled. I “lost” more than $40K on them in 2009, when in reality they are cash flow positive. This is not cheating, this is how the tax code is written.

Unfortunately the truth is that self employed people are more likely to not fit “in the box” of expense ratios.

Suggesting that taxes be based on gross income is idiotic. Would the commenter have us pay this same percentage tax on the gross sale value of stock, regardless of what we paid for the stock? Net income is representative of the actual gain that is what should be taxed.

I will happily argue about my contribution to not only Uncle Sam but to local property tax coffers via Property tax. Suggestion – commenter should buy a rental property and get some tax relief .

Disclosure – I’m self employed.”

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by JOHN MCCLELLAN

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