getting a mortgage when you're self employed?

[The motor guy]

Anyone have trouble getting a mortgage when you run a business? The problem is when you work for someone else I think they usually just look at your gross income, but when you're self employed they look at your net income which with all the deductions isn't very much.

 

[OneEyeJack]

There's not much you can do to change the process or the rules. Just have at it and get it done. Try several sources. Soon you'll be an expert.

 

[crazyoildude]

first rule: A very creative accountant !!

 

[Fraser434]

Have you been pre-approved yet?

Get ready to write letters, I found it easy to have a template letter. They would come at me with some transaction four or five months ago and say why did you transfer money to another account or I was given a reimbursement check from my work, they would come back at me ask if it was income. I'd have my canned letter ready type in a paragraph fire it off to them asap.

I would say the best defense you have in being self employed is time. Under writter wanted to see I was employed under the same job title for 3 years, so i'm sure the same would apply for you.

The mortgage guys are hungry nowadays, rates have risen not as many refi's to go around.

 

[dishdude]

It all comes down to what income you can prove and they can verify, and for how long the history is.

 

[JayhawkRoy]

Sometimes it is best to start with the bank where you have already established a relationship. Locally, there are several banks that say they are small business friendly. Now may be the time to see if your bank is that way.

 

[Nate1979]

Part of the housing mess was because of people reporting more income than they actually had in cases just like this.

 

[RoadRaceJosh]

Originally Posted By: Nate1979
Part of the housing mess was because of people reporting more income than they actually had in cases just like this.


Yes, and that was encouraged and enabled by greedy lenders.

 

[Quattro Pete]

Originally Posted By: Nate1979
Part of the housing mess was because of people reporting more income than they actually had in cases just like this.

I don't think it was cases like this at all. When you own your own business, your goal is typically to report as little income as possible in order to reduce your tax liability.

 

[Pop_Rivit]

Lenders will want to examine at least 2 years of tax returns. They will require you to sign a release for the information from the IRS (form 4506T if I remember correctly). Once they receive the information they'll take the total adjusted gross income and divide by 24 for your average monthly income (or 36 if they require 3 years). Your copies of the tax returns don't qualify since a tax return can be faked-they'll have to get it from the IRS directly.

Once they have that information they'll look for the debt to income ratio, both front end and back end. That's one reason why it's so important to correctly manage debt. If you don't have sufficient income or history, then you most likely won't be eligible for a mortgage.

As far as what lenders examine-they look at both the front end and back end on both self employed and W2 applicants. The more you can improve your back end DTI ratio the better off you'll be regardless of being self employed or a W2 employee.

 

[Doc8404]

I used lending tree.com and had people tripping over one another for business. However, I don't own a business.

 

[stockrex]

Originally Posted By: Pop_Rivit
Lenders will want to examine at least 2 years of tax returns. They will require you to sign a release for the information from the IRS (form 4506T if I remember correctly). Once they receive the information they'll take the total adjusted gross income and divide by 24 for your average monthly income (or 36 if they require 3 years). Your copies of the tax returns don't qualify since a tax return can be faked-they'll have to get it from the IRS directly.

Once they have that information they'll look for the debt to income ratio, both front end and back end. That's one reason why it's so important to correctly manage debt. If you don't have sufficient income or history, then you most likely won't be eligible for a mortgage.

As far as what lenders examine-they look at both the front end and back end on both self employed and W2 applicants. The more you can improve your back end DTI ratio the better off you'll be regardless of being self employed or a W2 employee.


typical peter/paul issue,
you increase your deduction to pay less to the tax man, but then your AGI is too small to buy that house/lambo etc.

After underwriter pulls your tax records have a sit down with him/her

 

[Andrew1972]

Typically they want your business to exist for 5 years. The last two years tax returns are there.

The major issue is majority of self employed folks out there is they hide income from taxman. Then they turn up returns which show pure expense and barely show an income to avoid them. It bites hard when borrowing money.

My business is quite opposite where they thought it was odd my expenses are about 3% of my income which in itself raised a redflag. Also beyond that no 1099 which raised more flags.

It took over a one year to refinance my home at 5%/30years to 2.3%/15years but they held the rate.

 

[Pop_Rivit]

Originally Posted By: Quattro Pete
I don't think it was cases like this at all. When you own your own business, your goal is typically to report as little income as possible in order to reduce your tax liability.


Correct-which can become a liability for someone who is self employed and wants to qualify for the largest possible mortgage. The goal (just like any taxpayer) is the lowest possible adjusted gross income, but can become a double edge sword for someone who is applying for a mortgage where the lenders look for a higher adjusted gross income.

Originally Posted By: Nate1979
Part of the housing mess was because of people reporting more income than they actually had in cases just like this.


Not correct. The cause of the housing bubble/burst was a number of causes, the largest contributor was sub-prime mortgage lending. For a significant period of time the sub-prime market had little or no income qualification conditions, so poor quality applicants had no problem getting sub-prime mortgages even though they never should have based upon their income.

 

[Hybrid]

Have you tried your local credit unions ? Do a better downpayment ?

 

[Doog]

Originally Posted By: motor_oil_madman
Anyone have trouble getting a mortgage when you run a business? The problem is when you work for someone else I think they usually just look at your gross income, but when you're self employed they look at your net income which with all the deductions isn't very much.


I have been self employed for over 25 years. You will need several things:

1. Use a mortgage broker. You pay a fee but they will get you financed.
2. Have 5-10 years of previous IRS 1040 Tax returns scanned or copied and prepared to document your income.
3. You need to have been in business minimum 3 years.
4. You'll need 20% down payment. The bigger the down payment the better the rate you'll be able to get.

I bought a home in 2012 for retirement and put 50% down. I was able to get a 3.3% fixed rate (no points) 30 year loan through my broker which was way less than I could have gotten through banks. So the broker more than paid for himself.

I will never borrow from a bank again.

 

[hattaresguy]

No they just want to see your tax returns.

 

[Mr Nice]

Originally Posted By: rsylvstr
I used lending tree.com and had people tripping over one another for business. However, I don't own a business.


How many companies were contacting you wanting your deal ?

 

[BMWTurboDzl]

Lots of incorrect information here.

First while net income is used as a starting point there are certain book entries that are added to this figure (ex. Depreciation, home office deduction , meals & entertainment).

The GSE's allow 12-24 months S/E history under some circumstances (i.e same line of work for X years).

There are also some cases where only one-years business & personal returns are needed (ex. 5 yrs operating the business, AND not using business assets for the transaction, AND increasing income).

Some lenders may have tighter requirements but they all generally sell the mortgage to the GSE's.

You can also visit fanniemae.com and look up the underwriting guides yourself.

 

[tenderloin]

Originally Posted By: Joshua_Skinner
Originally Posted By: Nate1979
Part of the housing mess was because of people reporting more income than they actually had in cases just like this.


Yes, and that was encouraged and enabled by greedy lenders.


The evil lenders made people lie.....