Self-employed and taking draws

A lot of self-employed borrowers don’t pay them selves a salary and only take draws. If you have an S corporation, you need to pay yourself a reasonable salary it is required per their rules. If you only take out draws, as an S Corporation, and you get audited, you will have a lot of problems with the IRS, which no one wants. Also, when you pay yourself the reasonable salary, it must be documented. If you transfer money from a business account to a checking account, that will not suffice. You will have to submit IRS form 941 to show what your quarterly salary is. Most self-employed S corporations also pay themselves a end-of-the-year bonus from the proceeds of the company. For that to used in qualifying purposes, you will need to provide a 2 year average.

I also would like to add an update to the Fannie May reserve requirements. All liquid stock, bonds, and mutual fund accounts were previously valued at the current market value, but now they will valued at 70%.  Retirement accounts use to be valued at 70% of vested amount, and that has been reduced to 60%. Finally, when using retirement accounts for reserves, borrowers will need to provide the withdrawal terms for each specified account.

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