At Capital Direct Funding, we understand a reality many California business owners face: your business may be thriving, but your tax returns don’t always reflect that success.
Smart tax planning—like taking deductions for home offices, equipment, or business expenses—can significantly reduce taxable income, which traditional lenders often interpret as lower earning power.
This doesn’t mean you can’t qualify for a mortgage. It just means you need a lender who looks beyond the tax return.
Below are illustrative examples of common scenarios we encounter. These are not actual client stories, but composites based on real-world lending challenges we’ve helped address for self-employed and small business borrowers across California.
The Tech Consultant: Income vs. Taxable Income
Imagine a software consultant in San Jose earning $400,000 annually. After legitimate business deductions—home office, software, travel, and professional development—their Schedule C shows only $65,000 in net income. Traditional lenders use that number to determine affordability, often limiting mortgage eligibility to under $400,000—far below San Jose’s median home price.
With a bank statement program, we can evaluate consistent monthly deposits (e.g., $30,000–$35,000) to more accurately reflect cash flow. This approach may support a higher loan amount, allowing the borrower to purchase a home aligned with their true financial capacity—even if their tax return tells a different story.
The Restaurant Owner: Navigating Complex Cash Flow
Restaurants often show low net income on tax returns due to depreciation, high COGS, or renovation write-offs—even when cash flow is strong. A borrower with $600,000 in gross receipts and healthy margins might appear “high risk” to a conventional underwriter.
In such cases, we may use CPA-prepared Profit & Loss statements, adding back non-cash expenses like depreciation, to demonstrate sustainable income. When combined with a spouse’s W-2 income or other assets, this can support qualification for a home in competitive markets like Irvine or Newport Beach.
The Freelancer: New Business Structure, Established
Income
California’s AB 5 law prompted many independent contractors to form LLCs. But traditional lenders often require two full years of filed business returns under the new entity—disregarding years of prior freelance work.
We recognize continuity of income. If a video producer has seven years of consistent freelance earnings and only recently incorporated, we can often use 12–24 months of personal or business bank statements to verify income stability, helping them qualify for a home in Los Angeles or elsewhere—without waiting.
The Seasonal Business Owner: Predictable Cycles,
Not Instability
Tax preparers, landscapers, and other seasonal businesses may earn the majority of their income in just a few months. Averaging monthly deposits across 12 months can dramatically understate true annual earnings.
Our underwriting team applies specialized income calculations for seasonal earners—weighting peak months appropriately based on industry norms and historical patterns. This can significantly improve qualifying income and open doors to homeownership in markets like Sacramento or San Diego.
The Growth-Minded Business Owner: Preserving Capital
Some entrepreneurs need a home but also want to retain business liquidity for expansion. Traditional lenders may require large down payments drawn from business accounts, potentially stalling growth plans.
Through asset-based or portfolio-backed loan options, we can sometimes structure financing that uses investment accounts or other liquid assets as collateral—allowing borrowers to secure a home while preserving capital for business needs.
Your Business. Your Reality. Your Mortgage Options.
You don’t need a “perfect” tax return to buy a home in California. What you need is a lending partner who understands how modern businesses operate—and how smart tax planning can mask true financial strength.
At Capital Direct Funding, we specialize in non-QM and alternative documentation loans tailored to self-employed borrowers, freelancers, and small business owners. We don’t manufacture success stories. But we do help real entrepreneurs access financing solutions that traditional lenders often overlook.
If your income is real but your tax return doesn’t show it, we’re here to help.
Contact Capital Direct Funding at (626) 796-1680 or visit capitaldf.com to explore your options.
Loan approval subject to creditworthiness, documentation, and program guidelines. Rates, terms, and eligibility vary. Not all borrowers will qualify.