Self Employed Mortgage Question

[Etschell]

Originally Posted by breitlings

I understand. I think the OP was discussing how his income looks lower because expenses are written off from the business revenue and may show an income below what a bank will lend at for a given house.

I've heard of revenue based lending. I have no experience with it though.

yes but he cant have it both ways. who says his write offs are so substantial they swing him to not lendworthy?

i am not going to get into taxation gray areas though.

[dimag333]

Originally Posted by Etschell

yes but he cant have it both ways. who says his write offs are so substantial they swing him to not lendworthy?

i am not going to get into taxation gray areas though.

Hey I’m sitting right here lol, my point is I can’t get a traditional
Mortgage on a house I bought 8 years ago lol

Write offs aren’t the issue, banks seem pee shy, but yeah original question was stamens mortgage, but I’m willing for any of you accountants or lenders to take this off line

steve

[520Matt]

Originally Posted by dimag333

yeah I am working with 2 pretty good brokers, but it's tough since my credit is mid 600's because of business stuff being on my personal credit and really needing to take paychecks, for what it is worth we file as s corp no llc so hands are a bit more tied on how we take our income, I might pm you, my good friend Joe Oz is out by you actually with KW, he has done very well out here on the east coast

steve

Why is your credit score in mid the 600’s? Do you not pay you credit card balances monthly?

[dimag333]

Originally Posted by 520Matt

Why is your credit score in mid the 600’s? Do you not pay you credit card balances monthly?

Yeah man no way I can pay all my debt from starting my company, I’ll probabky be able to clear out some next year but I have some pretty serious cameras, I went all in, couple hundred thousand, probably still sitting on about $80k ish

So yeah debt to income is def an issue, however I had a really bad accountant who had me paying my bills with my personal bank when I should have been paying with my busines all along; now that I have established those as busines debts I should be better off this year as far as debt to income, however banks just don’t lend money to small businesses at least in my industry without putting your personal credit on the line.

I also pay my employees extremely well, So my what I should be putting toward business debt I re invest in personnel and gear.

I want to phase myself out of shooting in the next couple years hopefully

steve

[520Matt]

Gotcha, makes sense. Good luck with everything

[dimag333]

Originally Posted by 520Matt

Gotcha, makes sense. Good luck with everything

Oh yeah and I am fiscally irresponsible when it comes to watches, cars and bicycles 👍

steve

[Travelair007]

Originally Posted by dimag333

Oh yeah and I am fiscally irresponsible when it comes to watches, cars and bicycles 👍

steve

Steve,
I’m in a very similar situation except my score is almost 800. I have 3 businesses, all pass through with one S elect. The pass through income counted and cash in bank with credit score helped. I don’t have personal debt but the businesses have multiple seven figures of debt.

I had a hard time with banks but I found mortgage brokers a little more flexible (they will resell your mortgage to a bank - ironically, sometimes the banks that declined you in the first place)

Have you tried that route? There are some hungry creative brokers out there.

[bdex75]

Originally Posted by breitlings

You can add take institutional funding to that. Most VCs will only invest in a C-Corp to protect their tax status, and will need a company to capture gains out of an LLC. Overall not a lever I want to negotiate. I agree that a C-corp is a PITA but I think under the new tax laws there are reasons for a C-Corp, like you can a low business tax rate, pay yourself minimum reasonable salary and be in a low tax bracket, then dividend the rest at 15-20% without self-employment tax and end up with a total effective rate lower than an LLC. I am not 100% sure though and I've been told no one is 100% sure yet.

This is how I understand it as well and have conveyed it to a few clients whose CPA’s have understood it the same way. We shall see.


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[toxicavenger]

I am a S-Corp. We have run into this issue recently. If you do not take a check from your business then you don't technically have an income.

I guess your business might be able to buy the place but I am not sure how.

[toxicavenger]

Originally Posted by dimag333

Yeah man no way I can pay all my debt from starting my company, I’ll probabky be able to clear out some next year but I have some pretty serious cameras, I went all in, couple hundred thousand, probably still sitting on about $80k ish

So yeah debt to income is def an issue, however I had a really bad accountant who had me paying my bills with my personal bank when I should have been paying with my busines all along; now that I have established those as busines debts I should be better off this year as far as debt to income, however banks just don’t lend money to small businesses at least in my industry without putting your personal credit on the line.

I also pay my employees extremely well, So my what I should be putting toward business debt I re invest in personnel and gear.

I want to phase myself out of shooting in the next couple years hopefully

steve

I ran into the same accountant issues the last few years. I felt totally gutted considering how much cash I was bringing in.

[psv]

There are a lot of variables here.

- What type of mortgage are you trying to get? Singel-family house? Apartment?
- Are you getting the loan by yourself or is there a partner/spouse involved?
- Are you looking for a conforming loan or a jumbo loan?
- What % is your down payment?

As several people pointed out, calculating income for self-employed can be very tricky, and many times it carries more risk for the lender.

Some mortgage 101: most (regular) people looking for a mortgage going for a conforming loan, which means that the loan confirms to the guidelines set forward by the GSE (Government Sponsored Enterprises), most notably Fannie Mae and Freddie Mac. The limits for such a loan is up to $453K, otherwise you are looking for a "jumbo loan". Apart from the upper limit, the guidelines stipulates limits to loan-to-value (LTV), debt-to-income (DTI), credit score, etc, etc.

Somewhat oversimplified: most entities that provide you with a mortgage do so with the intention of selling your mortgage to a GSE, who then will package up a larger group of mortgages into a pool and sell it off to investors around the world. This is how a bank/lender gets the liquidity to provide more loans to more people.

As pointed out, your best option is probably to find a mortgage broker that specialize/have lots of experience with working with self-employed, but you will have to provide tax-returns, asset statements, credit checks and much more to verify that you have enough income to meet the guidelines. You can read up more about the advantages of a mortgage broker here https://www.thetruthaboutmortgage.co...rtgage-broker/

[dimag333]

Yes we are looking at jumbo, which seems to have complicated things, standard 20%

steve

[psv]

Originally Posted by dimag333

Yes we are looking at jumbo, which seems to have complicated things, standard 20%

steve

So this means less lenders interested in your business. They will have to issue the loan and carry it probably in their own portfolio, i.e. carry the risk, which means the bigger shops.

Go talk to a mortgage broker and see what they can do for you (as I assume you have already talked to your own bank).

Best of luck!

[function12]

You can always check with a Credit Union too. Some are a lot more flexible.

[datejustrms]

Based on your situation; 660 FICO score, unable to show income to carry the monthly PITI and your other monthly debt, unfortunately it's highly unlikely any lender will finance you.

[dimag333]

Originally Posted by datejustrms

Based on your situation; 660 FICO score, unable to show income to carry the monthly PITI and your other monthly debt, unfortunately it's highly unlikely any lender will finance you.

yeah, I'm gonna clear a bunch of this business debt out and probably stick with a 2 year plan, my score keeps going back up (I was almost 800 before starting company), I'm not going to take more than I need, I would rather it sit and I can talk to my acct about taking a lump sum, if I play my cards right I might be able to pay all cash in 2 years or so who knows, just gotta stop buying watches and crap lol

steve

[datejustrms]

Originally Posted by dimag333

yeah, I'm gonna clear a bunch of this business debt out and probably stick with a 2 year plan, my score keeps going back up (I was almost 800 before starting company), I'm not going to take more than I need, I would rather it sit and I can talk to my acct about taking a lump sum, if I play my cards right I might be able to pay all cash in 2 years or so who knows, just gotta stop buying watches and crap lol

steve

Sounds like a good plan Steve.

[tmmii]

Talk to smaller local banks and credit unions and look for one of their portfolio loans. Something they keep and don’t have to comply with Freddie and fannies rules. Interest rate might be a little higher but my local one is still about 2.5% less than most bank statement loans. Hey are also more understanding on calculating income.

[V25V]

I'm self employed, no problems.


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[77T]

What did your own bank, the one processing your commercial account and business debt, ask you to do in order to get a mortgage?

They know your AR, AP and ratios - likely they’ll want big upfront cash to reduce debt load.

But it’s that FICO killing most deals.


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[austinp]

It can be challenging with only 3yrs on the books. I've found larger down payments solves these problems. Hang in there. After a couple more years you wont have these issues. 22 yrs self employed here.