Granted, these are not going to make or break a loan, but as I'm learning about this
I'm trying to understand the rationale behind WHY they do it like that.

And more specifically, I know they will add back depreciation which makes sense - but would they also add back things like "student loan interest deduction"? What about "1/2 of self employment tax deduction"?

When a bank is deciding whether or not to give you a loan, the use of a Debt to Income ratio already takes into account your monthly student loan payment, so it seems like "double dipping" that they can use it to knock down your income a few notches lower, and then turn around and also have that same category take away from your monthly spending power.

And don't get me wrong, I completely - 100% - agree with your debt to income ratio being affected since a student loan is a monthly expense, but it's hard for me to understand why they would also reduce your income for something that has nothing to do with the bottom line of your business income earning power? It seems to me like it would be fair to do one or the other, but not taking away from both sides.

I mean, if the gov't wants to give you a deduction for student loan interest, or for 1/2 of self employment tax, and that reduces the amount you pay them then great. But I'm not seeing how the gov't giving you a tax credit really has much to do with your ability to pay back the bank mortgage. You'll pay the bank back if your business is profitable, how much money you are bringing on an income statement (Income - expenses = net profit). Which brings us full circle - to me it seems silly that they would not use business income, and go for adjusted gross income that factors in deductions you'd be taking to lower your taxes on paper.

I'm missing something, cause every bank does this, the only way I understand is that maybe they're just trying to be ultra conservative with the numbers to ensure they give out a loan to someone who can definitely pay it back (which makes sound sense for them, but the principle of double dipping still irks me). If they really wanted to be more conservative about who they give loans to then why not just lower the debt to income ratio requirement accordingly (for ex: you can't go past 40% or 43% instead of 45% which I believe they allow).