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Can't buy a house with a home based business

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Regular Contributor

Can't buy a house with a home based business

I guess its possible those of us that are self employeed- but it just seem IMPOSIBLE to be approved without a W-2 like everyone else.  Smiley Sad

 

I’m 40 and have had my business for almost 20 years.  I have a low income but have a great down payment.  Smiley Happy

 

I would be a first time buyer and am interested in an income property in California.  I just found out I can add 70% of the "rents" to my income Smiley Happy

 

If banks would just use my gross income i might be able to buy now but they all seem to want to see a high net income.  Smiley Sad

 

To show a higher net-- I will have to stop about all write offs.  Smiley Sad

 

To show a higher net-- my families health insurance will sky rocket  Smiley Sad

 

I talked to a lender and he said I should be "seasoning the funds for my down payment."  Anybody know the best way I can do that?

 

Lender said I need to pay ~800/yr to incorporate or LLC my business in order to prove my income.  Is this really necessary?

 

You will see in my below signature that I am almost 2 years out of BK with ~670 FICO.  I am in no rush to buy.

 

I don’t know if FHA or Conventional would be better for me, my wife and new born.

 

I would like to understand the new "Day 1 Certainty" program to show my income.  Anybody familiar with that? What is the “third party” I need to verify my income?

 

Thank you for your time and any help you can lend. I had no idea how hard it is for self employed to get a house.

Ex 673 | Eq 665 | 665 TU (10-9-18)
Filed BK7: 11/2014 (start score TU 749) Discharge 4/2015 578 TU

$11,500 Cap1 Spark | $7,000 Cap1 QS | $5,500 Barclay | $500 Secured card w/ Western Fed CU | $3,000 Un-Secured Fry’s First Electronic Bank | Macy's 3,500 | Disc 11,500 | $100 Un-Secured Share Loan | all Util under 3%
19 REPLIES 19
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Moderator Emerita

Re: Can't buy a house with a home based business

It really is possible to get a mortgage if you are self-employed.  All that you have to show is that your income supports the mortgage payment according to the lenders' guidelines. 

 

The problem with many, not all, self-employed borrowers is that they deduct so much on their income tax returns that they show no available income to pay the mortgage. 

 

The lender will use your tax returns to verify your income.  

 

There are some programs that do not require tax returns.  A bank statement loan program comes to mind. Check with your LO to see if they offer that program. If they don't, find a lender that does have one. 

Message 2 of 20
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Regular Contributor

Re: Can't buy a house with a home based business

Thank you SO10!

 

Your last paragraph sounded hopeful for me and others in my boat that feels like its sinking as it relates to having to provide taxes with a gross so high that I can no longer afford health insurance, write anything off or afford the higher taxes that come with bigger nets.

 

I thought they got rid of what you described in your last paragraph because to many applicants were taking money out of the bank then just re-depositing that money to show more income on their statements.

 

Does anybody have any info about the new “Day 1 Certanity” program? Would this be another good option for those that work at home that enjoy the benefits of lower net incomes? The “third party verifier”? Would that just be the bank? What is an example of a “third party verifier” that this program speaks of?

 

Thank you in advance. Im ISO a lil hope for my family and I to somehow stop writing all these darn rent checks every month!

Ex 673 | Eq 665 | 665 TU (10-9-18)
Filed BK7: 11/2014 (start score TU 749) Discharge 4/2015 578 TU

$11,500 Cap1 Spark | $7,000 Cap1 QS | $5,500 Barclay | $500 Secured card w/ Western Fed CU | $3,000 Un-Secured Fry’s First Electronic Bank | Macy's 3,500 | Disc 11,500 | $100 Un-Secured Share Loan | all Util under 3%
Message 3 of 20
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Established Contributor

Re: Can't buy a house with a home based business

 
Message 4 of 20
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Established Contributor

Re: Can't buy a house with a home based business

MetaSource Mortgage Blog
Fannie Mae announces Day 1 Certainty Program
Wednesday, November 02, 2016

Guest Blog: Brady Meadows

On October 24th Fannie Mae announced their Day 1 Certainty program. Fannie Mae has integrated DU Validation into their DU system with vendors to validate income, employment, and assets. Lenders who chose to use the DU Validation service will get day one rep and warrant relief when it comes these validations.
Benefits
While the day 1 rep and warrant is the biggest benefit to clients, there are some post close QC benefits as well. Borrowers whose income, employment and assets are validated via the DU Validation system do not need to again be revalidated in the post close QC process. This will benefit lenders by negating additional processing fees to obtain these reverifications during the post close QC process. Additional cost savings will be had as lenders using the DU Validation services are not required to have their auditors spend time recalculating income or assets.

The Details
The devil is always in the details and this will be the case also. Currently, the post close QC process revalidates all income, assets and employment for all borrowers. Now, QC auditors will need to analyze the DU in further detail and determine which borrower’s income, employment and assets were validated via the DU validations service. Not all borrowers’ will be able to be validated via the DU service. It’s common to have multiple borrowers on the same loan not able to have their employment be validated via The Work Number. Additionally, borrowers with multiple jobs may not have all jobs validated via the new DU service. So it’s possible to have a loan where only one of many borrowers employment on the loan has been given the Day 1 Certainty.

Lenders are still held responsible to ensure the information used in the DU Validation is accurate. While question 38 of the DU Validations service does state you are not required to recalculate income or assets as part of post close QC, it still may be a good best practice. For instance, if a borrower’s paystub shows a payment this will likely not be analyzed by DU. The lender would need to note this liability and adjust the income accordingly. The point here is that while a lender may use the DU validation service, the entire file may not be given the Day 1 certainty. Fannie also mentions in question 21 of the FAQ’s lenders will also need to review The Work Number report to ensure the income is being reported correctly. So while Fannie is now not requiring the recalculation of income and assets in the post close QC process, it may still be a good idea to keep this practice.

Message 5 of 20
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Established Contributor

Re: Can't buy a house with a home based business

I don't really see how this would make much of a difference when it comes to providing proof of income for borrowers.

Anyone else??
Message 6 of 20
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Established Contributor

Re: Can't buy a house with a home based business

Oh and seasoning your funds just means letting them sit in a account for at least 90 days.
Message 7 of 20
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Moderator Emerita

Re: Can't buy a house with a home based business

Different lenders have different requirements so you will want to ask your LO what the specific requirements are for a bank statement loan.

 

From what I have seen on those type of loans is the following:

  • 12 months of bank statements
  • No 4506 or tax returns required
  • Higher min credit score of at least 680
  • Lower LTV's (bigger down payments) - max LTV is 80% - this may vary lender to lender
  • Max DTI (back end) 50% - this max debt ratio varies too

Be careful, you don't want to fall into that trap of trying to show more income than you actually make by depositing and withdrawing and re-depositing the same funds. It is mortgage fraud if you do and you don't want to go down that road.

 

When applying it is best to just be honest in your application and get qualified for the amount you can actually afford. 

 

If you are looking to get a high LTV type loan, then you need to supply tax returns and go through the extensive verification process.

Message 8 of 20
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Regular Contributor

Re: Can't buy a house with a home based business

StartingOver10 is 100% correct. “A Bank Statement Loan” is the only way to go. With the profile I have described, I’m ok in about every category except the amount shown on my taxes.

 

I have yet to find any local bank that offers “A Bank Statement Loan” there are several on the web but they all sound a little to good to be true. hmm

 

I’d like to go for an FHA but I don’t think I can since they will ask to see my taxes and my wife’s credit.

 

I still am unsure what the “third party” is that I need to verify my income. By just providing BofA bank statements, does that mean that BofA is my third party? Or would it just be the word of my tax guy?

 

I have been hearing a lot of people talk about “Profit Loss Statements” Is this just something I fill out? My tax guy? Is it just the honor system with this kind of statement?

 

Lots of hope this new year. Thank you for your time and any help.

Ex 673 | Eq 665 | 665 TU (10-9-18)
Filed BK7: 11/2014 (start score TU 749) Discharge 4/2015 578 TU

$11,500 Cap1 Spark | $7,000 Cap1 QS | $5,500 Barclay | $500 Secured card w/ Western Fed CU | $3,000 Un-Secured Fry’s First Electronic Bank | Macy's 3,500 | Disc 11,500 | $100 Un-Secured Share Loan | all Util under 3%
Message 9 of 20
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Valued Member

Re: Can't buy a house with a home based business

 
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