Seriously considering buying a house. Watched the housing market around here for ages and just did an initial walk-through of the house in consideration. However, before I go too far down this road, I'd hoping FWF can shed some light on whether I'd qualify for a mortgage or not. I've lurked on a few property threads and haven't found much that would shed light on my particular circumstances.
I'm a young, single college grad with no debt. Student loans paid off, never owned a car. I've dabbled in lucrative Credit Cards bonuses/churning ever since I discovered FWF but don't carry balances. Excellent credit score. Elephant in the room: Currently self-employed and I've never had a 'real' job. I started my own business in June. It's a low-overhead, seasonal business of which I'm the sole proprietor and sole employee. At the end of the 1st season in late October, ended up with a profit of roughly 22k. I expect the business to grow this upcoming season and I plan on opening up in April instead of June.
So, I can show my books to a lender and they'll see a young, profitable business. But will a lender give any credence to a business this new? It'll basically clear out my savings, but I could put 20% down on the property. Ideally, I'd love to only but 10% down, but I'm not sure if that's feasible.
The house I am looking is priced at 99k. It's a duplex and is currently bringing in 1,100/month in rental income. I would be planning on living in the upstairs of the duplex and continuing the rent out the 1st floor for 550/month to the current tenants. Will lenders factor in that rental income at all when it comes to evaluating your ability to pay a mortgage?
Any feedback would be appreciated. I am extremely green when it comes to home ownership, but I do feel like this is a smart place to put my money. I'm bullish about the neighborhood, know I can handle basic tenant fixes w/out outsourcing them, and - most importantly - love the neighborhood and see myself sticking around for a good while.
One of the reasons I moved back to full time employment this year was to make it easier to refi my current place and/or buy a new place. There were other reasons too - I increased my salary at least 100% from what I was taking in the past few years as a self-employed person.
I think you are going to have a very hard time in today's market get a mortgage. Basically you have $20K in assets (20% of 99K house in savings, no debt). And can only establish 6 months of self-employment history with a 22K profit. So, at best the bank will extrapolate that you can make ~45K a year with a negligible amount in savings (especially if you put down at least 10%).
Now in my area I am looking at at least $300K for places, so it is a much different ballgame. Although I never actually tried to get the loans during my time self-employed, from what I had been told it would have been difficult if not impossible to get this type of loan even with a higher take home than you and considerably more in savings (with 20% down).
So - I think it will be difficult, but I think you just really need to talk to a bank and see.
I would be prepared to show them your business plan and expected earning especially if it will/can be considerably higher than forecasted here.
posted: Jan. 6, 2013 @ 4:57p
it's your 1st year tax return, you need atleast 2 years of tax return, I'm self-employed, 2011 I put back about $90k back to my business for equipment upgrades and other invest. one lender didn't turned first page of my 1040 and declined
posted: Jan. 6, 2013 @ 7:40p
Sorry, you will have a hard time (if not impossible) trying to grab a mortgage. I went from being a W2 in the same industry with fairly significant cash assets and in the same industry for more than 8-years and was told I would have to wait 1-year to buy a house as a 1099 employee.
posted: Jan. 7, 2013 @ 10:49a
I am self-employed, and while it's easy enough to qualify if everything is in order (good credit/income) you HAVE to have past 2 years of tax returns showing that you are making appropriate income for the price of the home you are buying and 20% down (maybe less with FHA, didn't try that route)
posted: Jan. 7, 2013 @ 11:15a
Small businesses are relatively risky in the sense that many of them go bust due to poor management. Just be cause you are making a profit now doesn't mean you'll make a profit next week. To lenders, this is purely a numbers calculation and they would rather not take the risk.
When the business is relatively new, the only thing that will count towards your mortgage applications are losses. For example, if you have two relatively new businesses, one making $5k a year and one losing $1k a year. The only business activity that they factor in is the $1k loss.
posted: Jan. 7, 2013 @ 12:48p
Yup, you are screwed as 1099, trying to secure a mortgage will be very hard. Try either getting a co-signer with significant sums of $ on paper, or wait another year or 2 and save up enough to mess with the banks by paying 95k down and trying to get a 5k mortgage, then laugh in the banker's face when you pull out 5k in cash from your back pocket and say "oh that's where that went".
Bank mortgages/refis have really really turn to sh|t even for people with great credit and 0 debt.
posted: Jan. 7, 2013 @ 12:57p
seller financing a possibility?
posted: Jan. 7, 2013 @ 1:11p
Do you have any other income? I only see 1 season of profit for $22k from the business. Is there other work or income I'm missing?
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