Guide · Self employed mortgages
Getting a Mortgage as an S Corp Owner: How Lenders Read Your K-1
If you own 25% or more of an S corp or partnership, a lender treats you as self employed, even though you pay yourself a W2. Here's how your income gets counted, and where owners lose qualifying income without realizing it.
Two pieces of income, read together
For an S corp owner, the lender starts with the W2 wages the company pays you. Then it looks at your share of the business's profit on the K-1. Both can count, but they're read differently.
W2 wages from your own company are counted like any paycheck, as long as the business can keep paying them. The K-1 profit is where it gets tricky.
K-1 income only counts if the money actually reaches you
A K-1 can show $150,000 of profit while most of that cash stays in the business. Lenders don't count profit you never received unless they can see one of two things:
- A history of distributions to you that's consistent with the K-1 income, or
- Enough cash in the business to support you taking it out, confirmed with the business return and balance sheet
If neither is there, the K-1 income may be cut back or left out, and only your wages count.
What gets added back
Lenders read the business return too, and some expenses are added back because they're not cash leaving the business: depreciation, depletion, amortization and some one time losses. A business that looks thin on the bottom line may qualify better once those are added in.
Where owners lose income
- Paying a low salary to save payroll tax. Smart for taxes, but if distributions are irregular, the lender may only see the low W2.
- Leaving cash in the business. Profit you didn't take out may not count.
- A down year. If this year's income is lower than last year's, lenders usually use the lower year or average down.
- A new entity. Switching from sole proprietor to S corp mid stream can make the history harder to read. Usually fine, but it needs explaining.
What to plan with your CPA
If you're buying in the next year, talk to your CPA and to me before the year closes. Sometimes a different distribution pattern or salary level makes a real difference in what you qualify for. Your CPA makes the tax call. I'll tell you both what the mortgage side looks like.
And if the return just won't show enough, a bank statement loan can qualify you on deposits instead. See how that works.
Common questions
Do I need my business tax return to get a mortgage?
Usually, if you own 25% or more of the business. Some loans can skip the business return when you've been in business several years and aren't using business funds for the purchase. I'll tell you which applies.
Does my W2 from my own S corp count as regular income?
Yes, as long as the business can keep paying it. The lender still reviews the business, because you control your own paycheck.
Want me to look at your numbers?
Free and confidential. I'll tell you which program fits and what you'd qualify for, and I'm happy to loop in your CPA. Hablo español.
More guides
- Real Estate Investors: DSCR Loans and How Depreciation Affects Qualifying
- 1099 Contractors and Agents: How to Qualify for a Mortgage
- Using Business Funds for Your Down Payment
- Buying a House While Your Taxes Are on Extension
General information, not tax or legal advice. Program terms vary by lender and change often. Not every borrower will qualify.