BiggerPockets

Happy New Years!

I am a business owner and have faced some problems with obtaining some RE loans due to too many write offs and "not enough verifiable income" i have almost all my debt paid off aside from my properties and have a good credit score.

I was wondering if i had my LLC taxed as an S-corp and listed myself as an employee and collected pay checks, i am assuming it would be easier to obtain the loans as an "employee" as opposed to a business owner?

Down money is not really my concern or an issue, just trying to strategically get approved.

Feel free to give me any feedback, tips or constructive criticism as i am trying to develop this further.

Thanks everyone, have a kick ass 2012!

Since you have a financial interest in the business, you'll need to disclose that to any lenders you work with. Ultimately, they're going to know that you own the business, and they'll treat you the same regardless of which way you approach it (since your financial situation is directly related to the financial situation of the business).

Not disclosing material things to the bank is bank fraud. It is amazing to me how common this is and how people rationalize it. One of the well-meaning partners I had recently wanted to do something similar.

You HAVE to disclose your whole financial picture to the bank. They are pricing risk when they underwrite the loan.

Absolutely. When applying for an auto loan, you generally only need to provide a SS# and agree to allow them to pull your credit -- they don't ask specific questions about assets or net-worth.

But, when applying for a real estate loan, you will almost always be asked to provide the equivalent of a balance sheet, and not including business interests and/or liabilities on the balance sheet is would seem to qualify as fraud (in my non-expert legal opinion).

Christopher, sounds like you are not convinced. A tax attorney probably doesn't know the intricacies of underwriting. People at banks might not either, depending on their position. Hey, is this a government underwritten (GSE) loan? Like you'd see at a "big box" bank, via Fannie Mae, Freddie Mac? Did you apply by filling out a form 1003? If so, the last line says "I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements concerning any of the above facts as applicable under the provisions of Title 18, United States Code, Section 1001, et seq." That's where Bryan and J Scott were coming from.

If it is a GSE underwritten loan, they won't accept your W-2 anyway. It's right there on page 286. Using the 'employ yourself with your own money' technique you won't make it through DO/DU anyway, so I'm just trying to save you some time and headache:

"...borrowers who receive income from partnerships or corporations in which they have a 25% or greater ownership interest. (Such a borrower is considered self-employed. The lender must document and underwrite the loan application using the requirements for self-employed borrowers, as described in Section B3-3.3, Self-Employment Income.)"

Self employment underwriting starts on page 315. Check out the section where the lender can waive some requirements... in case they may apply to you.

reference: https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel012711.pdf

For under 25% ownership, the ownership stake would still show up on the 1003 under "Net worth of business(es) owned" line item. Ownership "stake" is based on K-1 Capital percentage from what I recall. I've not done a 1003 loan for many many years. So, 1065 M-2 Partner/Member Capital times percentage ownership... I think that's what goes on the 1003.

Christopher,

I am glad you came to reason on this, getting RE financing thru manipulation of any kind has a way of either pissing off people you don't want to, earning a nice pair of silver linked bracelets with a free 10X10 condo, or both.

As a multi business owner AND REI of a couple fashions, my best and easiest experience is doing what I first suggested, find a smaller local bank, 3 branch offices or less, make a relationship, make sure they do portfolio lending, and you should be set on everything from RE to the car loans.
I have 3 I work with like this. They compete for the business. I have 1 as my go-to, and they have given me my best rates even when I didn't need them, and they did the lending on loans no one else would.

I will add I keep a insanely awesome DTI personally, and a credit beacon over 800. I have an associate who has used this same strategy and had upside down DTI, and a fair credit beacon, not good, fair.

Hope that helps