My wife and I collectively own more than 25% of a company that has taken over a million in investment from other investors for the purpose of growth. Our home loan is currently at 6.5%, and so we wanted to refinance it to take advantage of the 2.5-3% rates available now.

The problem is that all underwriters I've spoken to take the loss line from your K-1, ignoring the limitation of risk; this means that we "lose" much more money than we make, even though the company is growing revenues and we are drawing a salary, simply because of the investment.

Are there any banks that understand and will underwrite us in this kind of situation?

  • 3
    If the business is losing money, the underwriters need convincing that it won't go under any time soon. Can you prove that? As long as K-1 shows losses - I don't think you can.
    – littleadv
    Aug 26 '12 at 2:20
  • @littleadv It looks like the OP has other sources of income, but the bank subtracts the K-1 loss from it as if it came out of the OP's pocket. In this case, the business generates a paper loss (since it is a pass-through entity), so it should be disregarded in the OP's personal financial situation (In fact, his personal situation is better, since he is paying less taxes). Aug 28 '12 at 11:35
  • I understand the point that if his main source of income is a salary from the business, which he will lose if the business goes under, but that same situation would still apply if he were a non-owner employee (without the K-1 loss on his tax return). Aug 28 '12 at 11:41
  • @the English Chicken: This is exactly the case. I have income from several sources, but all of it is wiped out by the loss from the growing business. The business doesn't have any trouble getting credit, but the home loan underwriters don't look at that.
    – Bryan Agee
    Aug 28 '12 at 15:30
  • 2
    I think the bank classifies you as "self-employed" because you own at least 25% of your employer's stock (That's the common definition banks seem to use). That's why the look towards the company's finances, not just your own. Aug 28 '12 at 20:33

Stop accepting new investments and wait to show a profit on your K-1.

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