A little off topic but... Mortgage advice for self employed..?

by a40izzum. Posted on Sep 11, 2020    10    18

So I've finally decided to try to buy a home. It took me a while after a divorce and a little bit of soul searching to get to a point financially and credit wise to be in a position to do it, but I still have a lot of worries. The main issue is that I am self employed. My fist couple of years in business were crazy slow and we pretty much barely scraped by with my wife pitching in and doing odd jobs for folks.

Let's face it, anyone who has to pay self employment tax, when you're first getting started, trying to figure out how to do things, etc you do what you can to keep it as low as possible, I probably could have reported 40k and let myself be raped by the IRS, but with expenses, money that I was screwed out of on contract jumpers, money I was putting into the business for tools, equipment, training, etc I just made it as simple as possible and claimed a meager but not outrageously understated income.

My last two years 2018/2019 of tax returns are only for about 20k per year. This year, business has been fantastic, I have already made about 50k net. I have spoken to a representative from quicken who wants 2018/2019 returns with schedule as well as a profit/loss statement for 2020 and bank statements for the past 3 months.

According to the representative they will take all of these into account but I am really worried that they will just average this year's 9 months into the last two years and I'll end up with a super low approval amount or not be approved at all.

I have a good credit score, 725, will be contributing about 10k plus closing costs. Looking to borrow around 160k.

Is this even going to be a possibility? Is there anything I can do to help my chances of being approved?


darthurphoto 1

I’m in marketing at a bank. I would just go straight to a bank. Talk to a lender and see what they can do. Shop around to other banks, credit unions, and brokers. I’m at a small, family run bank so everything is done locally in house. Something like that could be a great option.

CrossTit 1

Mortgage Broker here. The Quicken representative is trying to qualify you with what is called a conforming loan. Conventional/FHA/VA are all considered conforming and they adhere to Fannie Mae/Freddie Mac Underwriting Guidelines. If you can get qualified for this type of loan for the house you want, then that will give you the best loan structure along with interest rate.

Everyone saying talk to a Broker is correct. If you aren't able to qualify for what you want with Quicken then definitely talk to a Broker. There is a non-conforming loan product called a Bank Statement Loan. A self-employed borrower can typically qualify for a lot more home with this loan type. They will take your income that can be sourced from your business for the last 24 month average of your bank statements. They also typically use some sort of expense ratio against it. They won't require taxes so deduction don't matter. 75% of the time this will be the loan for small business owner. The interest rate will be higher, but that would still be less money than taking fewer deductions!

  a40izzum 1

Thanks for the advice. Would it be possible to speak with you about this via pm or some other form of chat? I promise not to bother you too much. Just wanted to ask a few questions to someone who works in the industry.

vwh808 1

Might help if you specify where you are - lending criteria can differ a lot from place to place.

  a40izzum 1

The representative i spoke with from quicken said that he was looking to get me into a home possible loan. These are low to very low income loans with income limits based on median income. The very low limit in my area is 32k.

  a40izzum 2

Jefferson County Ohio.

wamih 2

I will recommend trying to find a mortgage broker, they will let you know what the banks are looking for.

  a40izzum 1

I am new to this entire process. I don't even know how to begin looking for a broker. Website recommendation?

airhighfive 1

I'd stay away from big companies like Quicken, try talking to local bankers that work with small businesses or a local mortgage company.

ThinkAuric24 1

Contact banks around you. Are you prequilified?

  a40izzum 1

The only thing I've done is fill out the form on Quicken's website and had my credit pulled.

wamih 1

Google local mortgages brokers and find someone with good reviews.

brucegilson 3

I am also self employed and buying a house right now. I am using a mortgage broker. Be careful when selecting a broker, you want to find one who knows how to get small business owners financed but I would stray way from one who says the "specialize" in self employed. Reason? Because they often mark you up several points because they know they have you stuck. You may want to wait and get your income up. Dependant on you DTI (debt to income ratio) your maximum house payment can probably only be $1,200 per month, and that must include PMI and Property Taxes.

If you have a high DTI your going to be hosed. But at least your are showing you are making money and that is most important.

  a40izzum 1

I want to stay around 1000/ mo. I have absolutely no debts whatsoever. I just need to figure out how I'm going to get approved. Idk what to do

brucegilson 1

Go to Google type in "mortgage broker" and your town name. Find 3 people you like off the top listings and all them. First question is "I am self employed. Do you have programs for self employed people who want to buy a house?" Then have 3 of them send you more information to your email on how to buy a house if you are self employed. Read the emails and call back the one who took you seriously and provided the best information.

  a40izzum 1

Thanks for the advice. I'm considering waiting until next year, I just don't know how long I'm going to have until we have to be out of our current residence and with things going so well for me business wise and credit wise I wanted to try to get this done before things have a chance to go south even just a little and hurt me in one of those areas.


Best thing you can most likely do is make a bigger down payment

  a40izzum 2

The most I'll be able to afford is 15k. Lender is looking into vetting me a Home Possible loan which is a low down payment program for first time buyers