A mortgage broker who reads a return the way you do
You spend the year legally minimizing your client’s taxable income — and then a retail lender reads that same return and decides they can’t afford a house. I read it the way you do: I know which add-backs come off, which programs fit a well-run self-employed borrower, and how to qualify your client without asking them to undo good tax planning. And I keep you in the loop, because you’re the one they trust.
Talk through a clientWhat you can count on
The things that protect your client — and your relationship with them:
- I read the return, not just the bottom line. Depreciation, depletion, amortization, a one-time loss, business use of home — the non-cash and non-recurring items come back to income where the guidelines allow, instead of sinking the file.
- No punishing smart tax strategy. A client who writes off aggressively isn’t automatically a decline. There are full-doc paths and, when the returns genuinely understate the cash, bank-statement and P&L programs built for exactly this.
- Straight answers, early. If a year or an entity structure is going to be a problem, you and your client hear it from me up front — while there’s still time to plan around it.
- Your client comes back to you. I’m the lender, not a competitor for the relationship. I take care of the financing and hand them back to you.
How I actually calculate the income
Most retail lenders run a self-employed borrower through the same box as a W-2 employee and get spooked by the write-offs. As a wholesale broker I shop it the way an underwriter reads it:
- Add-backs done right. Depreciation, depletion, amortization, casualty losses, and the business-use-of-home deduction are non-cash — they generally come back to qualifying income. A big paper loss is not the same as a cash loss.
- The right averaging. Usually a two-year average of net income; a single year can work for a longer-established, stable-or-growing business. A strong year following a weak one gets read in context, not just averaged blindly.
- K-1 income handled properly. Ordinary income and guaranteed payments count; distributions and the business’s liquidity get looked at so the withdrawals your client actually lives on are supported.
- Full picture across entities. Schedule C, S-corp, partnership, rentals — I’d rather see the whole return and the K-1s than guess from a 1040 summary.
The short version: here’s how I document self-employed income when the returns support it — and where they don’t, we go a different route.
When the returns don’t tell the whole story
Sometimes the return is doing its job perfectly — it just isn’t telling a lender how much money actually moves through the business. For those clients there are real options that don’t require reworking a single deduction:
- Bank-statement loans. Qualify on 12–24 months of deposits instead of net taxable income — for the established self-employed borrower whose write-offs understate their true cash flow.
- P&L and other non-QM paths. A CPA-prepared profit-and-loss can carry the income on the right program. These are non-QM loans — real, well-priced, and made for exactly this borrower.
The question you get asked most: “Should I stop taking write-offs the year before I buy?” Almost never. Two clean years to fit a full-doc program is one option — but if that means overpaying tax on income they didn’t really keep, a bank-statement program usually gets there without touching the return. Send them to me before they change how you file.
What I won’t ask you to do
You know the line an accountant can’t cross. I won’t ask you to cross it:
- No solvency letter. I will never ask you to certify that your client can afford the loan or vouch for their financial future — that’s not something a CPA can or should sign, and I know it.
- Only what the program actually requires. At most, a short letter confirming your client is self-employed, the business exists, and their ownership percentage — the factual items an underwriter can reasonably ask a preparer to confirm, and nothing beyond that.
How you can help your client
Three things, and I handle the rest:
- An early heads-up when a client mentions buying or refinancing, so we can look at the numbers before they’re under contract.
- The full returns and K-1s — the whole picture beats a summary every time.
- A flag on anything unusual: a new entity, a one-time event, a big swing year you can explain.
From there I keep you and your client in the loop the whole way through.
Questions CPAs ask me
How do you add back depreciation and amortization?
They’re non-cash deductions, so on a full-doc self-employed loan they generally come back to qualifying income along with depletion, casualty losses, and the business-use-of-home deduction. A borrower whose net income looks thin because of paper depreciation often qualifies for far more than the bottom line suggests. Here’s the full-doc approach.
Does one heavy write-off year kill the deal?
Not on its own. A two-year average softens a single aggressive year, a documented one-time expense can be added back, and if the returns genuinely understate the cash, a bank-statement program sidesteps the issue entirely. I’d rather find the right program than ask your client to file differently.
How is K-1 income treated?
Ordinary business income and guaranteed payments count as qualifying income; distributions and the entity’s liquidity are reviewed so the money your client actually draws is supported by the business. For a partner or S-corp owner, seeing the K-1s and the business return together is what lets me use the income cleanly.
Bank-statement loan or tax-return qualifying — which fits my client?
If the returns support the income, full-doc is cheaper and simpler. If your client’s deductions legitimately understate their cash flow, a bank-statement or non-QM program qualifies them on real deposits instead. I’ll run both and tell you which actually wins for that borrower.
Will you ask me to sign a letter vouching for my client?
No solvency or ability-to-repay letter — I know that puts a CPA in a position they can’t accept. If a program needs anything, it’s a short factual confirmation that the business exists and your client is self-employed with a stated ownership percentage. Nothing that asks you to guarantee their finances.
Have a client whose return keeps getting them declined? Send me the scenario →
I’m Matt Mergo, an independent wholesale mortgage broker with more than 20 years in the business and thousands of families helped, licensed in Florida, Pennsylvania, and Texas, NMLS #563819. Self-employed and 1099 borrowers are a core part of my work, and almost all of my business comes from referrals and repeat clients — the only review that counts in this work.
Let’s take care of your client
Send me the client a retail lender turned away over their returns, and I’ll give you a straight read on whether I can close it and how. No pitch, no pressure, and the relationship stays yours.