Question for business owners who bought a home

boatBurner

boatBurner

shutup, crime!
Feb 24, 2012
1,521
35
0
My wife and I have a goal set to mortgage a home (U.S.) in 2014.

Having a stupid-young LLC, I'm already concerned about the eligibility of my income. One of the only benefits I have is being a veteran eligible for the VA loan.

I'm wondering if anyone here has experience purchasing a home when you had to qualify your income from your business. What did you do?

Any tips and help would be greatly appreciated. Thanks.
 


I was in the same boat a few years ago. Had to have 2 years history of income. First time we tried I only had about 1.5 years and did not qualify. Tried again a year later and had no problems.
 
You don't do anything... you deal with the lender/broker and they will tell you what documents they need. Bank statements, last xYears of tax returns, credit scores & current debt info, etc...

We did it a few years ago when it was the most challenging and we are both "self-employed".

You could always talk to someone now about what you need, get pre-approved, keep debt low, etc... If you are making enough, have some savings, low debt to income ratio and aren't going to try to finance the entire thing you'll probably be fine.
 
I don't know about the U.S., but I had no problem getting approved here in Canada, even when my business had only 1.5 years of history. Their only requirement was a decent credit score, and to not already have large debts. (I only had about 5k credit card debt when I applied)

I know a self-employed web designer that only makes 35k a year that got approved for a mortgage as well.
 
Aside from showing regular and adequate W2 income, the other big thing you NEED to do is make sure you use "professionals" to do your bookkeeping, taxes, etc. If you don't you will NOT get a loan no matter how much money you make or how high your credit is. At least not from a "big" mainstream lender. So if you plan on buying in 2014, now is the time to get on this. If you did your own taxes in 2012 I would send it off to a tax guy to "redo" it, because you will need it. Then have the same tax guy do your 2013 taxes early next year, and you should be good to go. You'll most likely also need to show a year-to-date profit & loss statement so you'll need someone to do that for you as well. They really don't care if you have a corporation and get paid regular W2 income, etc. If you and/or your wife, etc. are the primary shareholders they treat you as self-employed.
 
most of the time its 2 years tax documents. however some people I know just pay for it all in cash and dont bother with the whole mortgage thing to begin with.
 
Min 2 yrs tax returns + profit/loss statement and balance sheet.

There are many advantages with a VA (zero down, no PMI) but you could also be at a disadvantage when it comes down to actually putting in an offer on a home. If you are in a competitive market that usually has multiple same offer situations, a seller will often look at a conventional loan first, then FHA then a VA loan. Conventional loans are seen as a stronger offer and often close the fastest because they aren't gov backed and usually have at least a 5% - 20% down payment. Just something to be aware of...
 
boatBurner said:
My wife and I have a goal set to mortgage a home (U.S.) in 2014.

Having a stupid-young LLC, I'm already concerned about the eligibility of my income. One of the only benefits I have is being a veteran eligible for the VA loan.

I'm wondering if anyone here has experience purchasing a home when you had to qualify your income from your business. What did you do?

Any tips and help would be greatly appreciated. Thanks.
Click to expand...

1. 2 Years of state income on your tax returns. For example if you made a 100k but told the irs you only made 50 because of all the "write offs" then the lender will count 50k.

2. They then take the 50k and use that to create a debt to income ration. Generally speaking most lenders will not accept a debt to income ration above 45 percent. So if you are doing this with your wife and you guys have car payments make payments to the irs monthly and or ur cc payments a month will all count agianst your debt to income. If it goes above 45 percent you are on shakey ground.. They will make exeptions if lets say you end up around 46 percent or 47 percent but it depends on the lender and ur overall health with regards to ur credit.

3. DONT OPEN A SINGLE NEW CC or BUY A CAR OR DO ANYTHING that requires you using ur credit. its a sure way of fucken up your loan. dont EVEN sign up for a macys card. in fact dont do anything that even checks ur credit.

4. get 1 year of bank history for both u and ur wife. including ALL pages printed. basically the entire monthly statement.

5. you need to have 6 months of reserves in your bank account as well this needs to be verified this is on top of your down payment.

6. under 20 percent requires you to pay PMI insurance

7. Dont buy anything right now.. the real estate market is cooling a bit so you might get some better prices in december.

8. If you seem to be catching your self with other buyers in relations to where a home has other offers and u seem to keep losing out. When you find a home you like. YOU CALL the listing agent and basically say to them. i dont have a gent can u help me buy this home. They agent will represent you and the seller which doubles there comissions but also ensures you having a fighting chance of having ur offer accepted.

9. USE a good lending company. i used primelending.. which was good to me but your milage may very. VA has some good programs.

10. Dont be afriad to make offers on a home you like unseen in this market. it happens all al the time. but make sure you can backout if the inspection comes back crappy. which is the case almost all the time.

11. dont make any large purchases even if its with cash before securing the home.

12. GET ALL your documents that you need in a row. check your credit score by going DIRECTLY to the sites like equafax or experien dont use those free 3 in noe credit they are not reliable. in fact even directly going to the credit check websites like equafax might not be 100 percent reliable either as some of the leders use there own private system. BUT youll get an idea.

13. dont buy a house you cant afford. but dont be afriad to offer a little more for a house you truely want either. Its important though you have realistic expectations. remmeber the income you have TODAY is no way reflective of the income you will have tomorrow. I USE the minimum wage model. basically.. can i work a minimum wage full time and make the morgage payment. IF NOT then i wont buy a house.

14. Take into consideration property taxes they very from city to city EVEN if they are in the same county. New cities tend to have higher taxes including but not limited to such things as mella roose. obvously assocations are to be consdered as well if buying a condo or town house.

15. A budget set aside for upgrades and fixes need to be set. You might love the bones of a house but hate the color inside and the granite counters are ugly and your wife wants new ones.

16. make upgrades to the house GRADUAULLY.. some important things like changing carpets and paint needs to be done fast. but you DONT HAVE TO upgrade the bathroom if it doesnt need it or the kitchen. buy things in peace meal never buy everything at once.

17. USE craigs list and other similiar sites to purchase things for your new house. Bought a brand new blender off craigs list for 10 bucks that retialed for 40. That 30 dollar savings was off of one item. now do that for 100 items you need for your house and the savings become substantial.

18. anyway i can keep going but hopefully some of this stuff will help you.

BEST OF LUCK
 
Tony71 said:
13. dont buy a house you cant afford. but dont be afriad to offer a little more for a house you truely want either. Its important though you have realistic expectations. remmeber the income you have TODAY is no way reflective of the income you will have tomorrow. I USE the minimum wage model. basically.. can i work a minimum wage full time and make the morgage payment. IF NOT then i wont buy a house.
Click to expand...


Figure out what YOU can afford per month with all of your other expenses, including tax and insurance, don't go by what the bank says. The houses I've bought the bank always says "you qualify for xxx" and I'm thinking you might lend me that, but I can't live with a payment like that.
 
What dew said.

and kind of what i was hinting at with number 13. My bank actually qualified me for a 700k home. You know the price of the home i bought? 240k.. IN FACT i set a budget of 180 and worked UP to 240.. Buyer a smaller house.

but with how much i put down and factored in minimum wage job i could afford it. Even i have even considered getting a roommate to help pay of the morgtage faster but my fiance objected =)
 
I bought a house 3 years ago when the lenders were extremely tight and even with all 3 credit scores over 800, and 20% down, it was a bitch getting a mortgage as a business owner. I ended up having to get business and personal bank statements for the last 2 years to go along with my tax returns. I don't think they're as tight anymore, but they definitely would rather give a mortgage to a working stiff than a business owner.
 
Tony71 said:
1. 2 Years of state income on your tax returns. For example if you made a 100k but told the irs you only made 50 because of all the "write offs" then the lender will count 50k.

2. They then take the 50k and use that to create a debt to income ration. Generally speaking most lenders will not accept a debt to income ration above 45 percent. So if you are doing this with your wife and you guys have car payments make payments to the irs monthly and or ur cc payments a month will all count agianst your debt to income. If it goes above 45 percent you are on shakey ground.. They will make exeptions if lets say you end up around 46 percent or 47 percent but it depends on the lender and ur overall health with regards to ur credit.

3. DONT OPEN A SINGLE NEW CC or BUY A CAR OR DO ANYTHING that requires you using ur credit. its a sure way of fucken up your loan. dont EVEN sign up for a macys card. in fact dont do anything that even checks ur credit.

4. get 1 year of bank history for both u and ur wife. including ALL pages printed. basically the entire monthly statement.

5. you need to have 6 months of reserves in your bank account as well this needs to be verified this is on top of your down payment.

6. under 20 percent requires you to pay PMI insurance

7. Dont buy anything right now.. the real estate market is cooling a bit so you might get some better prices in december.

8. If you seem to be catching your self with other buyers in relations to where a home has other offers and u seem to keep losing out. When you find a home you like. YOU CALL the listing agent and basically say to them. i dont have a gent can u help me buy this home. They agent will represent you and the seller which doubles there comissions but also ensures you having a fighting chance of having ur offer accepted.

9. USE a good lending company. i used primelending.. which was good to me but your milage may very. VA has some good programs.

10. Dont be afriad to make offers on a home you like unseen in this market. it happens all al the time. but make sure you can backout if the inspection comes back crappy. which is the case almost all the time.

11. dont make any large purchases even if its with cash before securing the home.

12. GET ALL your documents that you need in a row. check your credit score by going DIRECTLY to the sites like equafax or experien dont use those free 3 in noe credit they are not reliable. in fact even directly going to the credit check websites like equafax might not be 100 percent reliable either as some of the leders use there own private system. BUT youll get an idea.

13. dont buy a house you cant afford. but dont be afriad to offer a little more for a house you truely want either. Its important though you have realistic expectations. remmeber the income you have TODAY is no way reflective of the income you will have tomorrow. I USE the minimum wage model. basically.. can i work a minimum wage full time and make the morgage payment. IF NOT then i wont buy a house.

14. Take into consideration property taxes they very from city to city EVEN if they are in the same county. New cities tend to have higher taxes including but not limited to such things as mella roose. obvously assocations are to be consdered as well if buying a condo or town house.

15. A budget set aside for upgrades and fixes need to be set. You might love the bones of a house but hate the color inside and the granite counters are ugly and your wife wants new ones.

16. make upgrades to the house GRADUAULLY.. some important things like changing carpets and paint needs to be done fast. but you DONT HAVE TO upgrade the bathroom if it doesnt need it or the kitchen. buy things in peace meal never buy everything at once.

17. USE craigs list and other similiar sites to purchase things for your new house. Bought a brand new blender off craigs list for 10 bucks that retialed for 40. That 30 dollar savings was off of one item. now do that for 100 items you need for your house and the savings become substantial.

18. anyway i can keep going but hopefully some of this stuff will help you.

BEST OF LUCK
Click to expand...
#1 - That depends on how he classifies his income. CPA + Lender need to give the proper advice on that one.
#2 - Your numbers appear to be outdated. As I said in my other post, it depends on the lender. Debt to Income Ratio: Tips from Bank of America
#3 - That is true during the loan process, but that may not apply now if their goal is 2014 purchase. Again, talk to a lender.
#5 - Incorrect. 6 months of reserves are not required for a VA loan unless you buy multi-family
#6 - Incorrect. This is for a VA loan
#7 - Incorrect. This is entirely dependent on the market. I know where Boat Lives and right now is a great time to buy. Aside, the mentality of timing the market to purchase a home you intend on living in is dumb unless you can foresee large industry changes such as home buying credits or financial market swings. Good luck with that.
 
blureach said:
#1 - That depends on how he classifies his income. CPA + Lender need to give the proper advice on that one.
#2 - Your numbers appear to be outdated. As I said in my other post, it depends on the lender. Debt to Income Ratio: Tips from Bank of America
#3 - That is true during the loan process, but that may not apply now if their goal is 2014 purchase. Again, talk to a lender.
#5 - Incorrect. 6 months of reserves are not required for a VA loan unless you buy multi-family
#6 - Incorrect. This is for a VA loan
#7 - Incorrect. This is entirely dependent on the market. I know where Boat Lives and right now is a great time to buy. Aside, the mentality of timing the market to purchase a home you intend on living in is dumb unless you can foresee large industry changes such as home buying credits or financial market swings. Good luck with that.
Click to expand...

Although i was responding to boat this was general advices from my own experience for the average person not just a person with a VA loan. Considering 95 percent of barrowers are NOT Va qualified 5 6 are absolutely correct.

With regards to 1. When he talks to a CPA he will tell him exactly what i said. The lender will take the average of 2 years of NET income. if he made 6k one year and 4k the next year. The average will be 5k and a base number used agianst his debt to figure out a debt to income ratio. which brings me to the other point. My numbers ARENT outdated but a general rule. The 45 percent is a general rule. Certainly it doesn't mean just because end up with a 47 percent debt to income ratio means you will automatically NOT GET the loan.. it also means just because your debt to income ratio is 43 percent means you will automatically get it either.

in regards to the 6 month of reserve. Thats good advice in GENERAL.. it doesnt matter if the VA loan process requires that. BASIC math should require that. If you dont have 6 months of mortgage payment saved up then you cant afford to buy the house you are buying. simple as that.

Which brings me to 7 and the stupidest thing iv ever heard.

IF you are buying a home you want to live in but also want to time the market with it going up then yes its not worth the effort or risk because if you buy a 200k home and it goes up to 300k thats great but since you dont plan on selling it then extra 100 increase in equity is good but generally not much of a difference.

BUT IF you are looking for a home you can afford then it makes abosloute sense to take your time and watch the markets. the idotic statement that you shouldnt time the market because your going to live in it meant that instead of buying my current home for 240k in 2012 i should have bought it for 450k in 2006 because AFTER all i was going to live in it right? what difference does it make?

HELL NO.. no one put a gun to my head that i HAVE to buy a house. renting for some poeple is just FINE. and if renting from 2006 to 2012 meant i bought the same house for 200k cheaper. then im glad as hell i time the market. i saved my self a shit ton of money not buying into a market that had extremely inflated prices.

and by the way its a FACT, that certain months of the year on average home prices are lower and less competitive. Then to buy a home in lets say the month of NOV VS the Month of april when things are heating up for the summer.
 
Tony71 said:
Which brings me to 7 and the stupidest thing iv ever heard.

IF you are buying a home you want to live in but also want to time the market with it going up then yes its not worth the effort or risk because if you buy a 200k home and it goes up to 300k thats great but since you dont plan on selling it then extra 100 increase in equity is good but generally not much of a difference.

BUT IF you are looking for a home you can afford then it makes abosloute sense to take your time and watch the markets. the idotic statement that you shouldnt time the market because your going to live in it meant that instead of buying my current home for 240k in 2012 i should have bought it for 450k in 2006 because AFTER all i was going to live in it right? what difference does it make?

HELL NO.. no one put a gun to my head that i HAVE to buy a house. renting for some poeple is just FINE. and if renting from 2006 to 2012 meant i bought the same house for 200k cheaper. then im glad as hell i time the market. i saved my self a shit ton of money not buying into a market that had extremely inflated prices.

and by the way its a FACT that certian months of the year on average home prices are lower and less competition to buy a home in lets say the month of NOV vs the Month of april when things are heating up for the summer.
Click to expand...
Your examples are terrible and do not reflect the regular market. They reflect either a bubble or a dramatic change in market condition that have more to do with the location or condition of your house. The bubble is not predictable and the location of your house are only relevant to timing if you are aiming in an area with future developments.

If you are buying a home for your family to live in, an estimated 2-3% swing on a 200k house isn't as big of a deal. Unfortunately, no way to gauge that with our crazy markets, especially in AZ.

Obviously we agree that taking your time and finding a home that is poised to make big gains over the course of your stay is ideal, but your statement had nothing to do with that...
7. Dont buy anything right now.. the real estate market is cooling a bit so you might get some better prices in december.
Click to expand...
This is just dumb because in Queen Creek, AZ and several other pockets in AZ, it's red hot. In Baton Rouge, where I'm living, the Downtown area is going nuts and showing no signs of stopping. It entirely depends on the level of home you are getting into and the area.

My statement regarding timing the market is related to your generalized advice of "6 months from now is the time to buy!!". You have the winning stock picks for us as well?
 
Tony71 said:
3. DONT OPEN A SINGLE NEW CC or BUY A CAR OR DO ANYTHING that requires you using ur credit. its a sure way of fucken up your loan. dont EVEN sign up for a macys card. in fact dont do anything that even checks ur credit.
Click to expand...
Alternatively, sign up for it over the phone, and then send your own C&D to the credit bureaus (no lawyer required) asking that they remove all instances of hard credit checks unless they can back them up with evidence that you authorised them, and if they can, for them to send it to you.
 
I was a mortgage broker for 5+ years back in the day. Generally self employed need to show 2+ years of self employment. Usually your qualifying income will be the average of last 2 years tax returns. Sometimes they will go off the last years income instead of averaging the last 2, but it really depends. If you made $40k in 2011 and then $400k in 2012, your more than likely going to have to go off the average of the two.

Now, with that being said, I would 100% try and qualify for a VA loan (unless your putting 20% or more down on the loan) as the terms are usually better than anything else available.

Also, it used to be back in the day, a high credit score could get you less income documentation. The lender would enter all your information into their computer and the computer would spit out your required income documentation etc.
 
You must log in or register to reply here.
Top Bottom