The Math Just Got Harder

I keep having a version of this conversation lately. 

Someone's business is finally making real money. Their side hustle isn't really a side hustle anymore. They're freelancing, consulting, driving, delivering, or earning 1099 income on top of their day job. 

The income is there. 

It's just not a traditional paycheck. 

Then they start thinking about buying a home, and the math doesn't work the way they expected. 

It's not one big obstacle. It's three things stacking up at the same time: 

1. Mortgage rates are still elevated. 

Rates have come down from some recent highs, but borrowing remains expensive. Buyers shouldn't build their plans around the assumption that significantly lower rates are right around the corner. 

2. The mortgage isn't the whole housing payment. 

Property taxes, insurance, HOA fees, maintenance, and other carrying costs can add hundreds or thousands to the monthly cost of owning a home. 

The number people fixate on is the rate. 

The number that actually breaks a budget is the monthly total. 

3. Self-employed income can look different to a lender. 

Business owners, freelancers, and 1099 workers can face a more complicated underwriting process. Depending on the loan and circumstances, lenders may look at tax returns, income history, business financials, and other documentation to determine qualifying income. 

And this creates an important tax-planning issue. 

A business owner might say: 

“My business made $120,000.” 

But after legitimate business expenses and deductions, the tax return may show considerably less taxable income. 

Those deductions can reduce your tax bill. 

But reducing taxable income and maximizing mortgage-qualifying income can sometimes be competing objectives. 

That's why the conversation shouldn't start after you've found a house. 

If you're self-employed and thinking about buying within the next year or two, talk to a lender early, and talk to your tax professional early, too. 

Your tax strategy shouldn't exist in a vacuum. Major financial goals should be part of the conversation before the return gets filed. 

J&C Briefs | Joachim & Co. 

Tax. Business. Money. Explained.