Loans for self employed?

Question

Seeking Advice: My husband and I own two SFH and rent them out for $875 & $1000 a month (we sent out $25 rent increase notices last month). $900 & $1025 is our new cash flow not accounting Taxes ($1000 a year combined) and Insurance. We have a 3rd SFH property we rent for $900 but we pay close to $300 PITI a month. We are currently selling this home to allocate our gains to a down payment. We lived in one of the properties about 4 years ago, we currently rent. All three homes were full rehabs purchased with savings. My husband is a general contractor in the area (self employed) and I managed our business. We have never applied for a loan and don’t know where to start. Our landlord is selling his property and would like to buy it.

Zach Edelman · Answer

@Elizabeth Perez contact me at eight four seven- four seven one - six three eight four. I am an LO at a DSCR lender known as Easy Street Capital. I do lending for refinances (both rate-term and cash-out) and acquisitions for cash-flowing residential investment properties like the one you are describing above. We don't do any income verification or tax verification, so you being self employed is not remotely issue. Looking forward to hearing from you.

Dave Skow · Answer

@Elizabeth Perez- I would recommend  getting a  pre approval  started  - this is  free  and  this process will allow you   1) become familiar with the  process and the numbers  and  2) allow you to know what  amount  you can  qualify for

Ask colleagues /  friends  for  loan officer  referrals and then contact them to  get  a pre approval process started

Eric Goldman · Answer

if you are planning on living in it.. you can do a business bank statement loan or stated income mortgage.

Nicole Heasley Beitenman · Answer

I was going to suggest something similar. Look for lenders that offer non-qualified mortgages (aka non-QM loans).

Erik Estrada · Answer

Hey @Elizabeth Perez it seems like a DSCR loan would benefit you in these circumstances. This loan does not require verification of income or tax returns to qualify. Instead lenders will look at if your total housing expense is less than your rental income.

Marshall Leipprandt · Answer

@Elizabeth Perez Seems like you two have everything squared away then. They will likely be more interested in your business income as they will be able to link past and present income to the performance of that business whereas your rental properties, although occupied and performing well it seems, could have vacancies and in the eyes of a bank be a bit less reliable. However, if they are showing as supplemental income on taxes, they will still probably include some of that income.

If the sale of your home is finalized, that will put you in a great spot. In terms of lenders, I think a local credit union or even your local bank could help. Even big online banks can help it just depends on what you value (lower interest rates, points, fees or personal relationships with a local bank). Sometimes you can get both features with small credit unions or local banks. Also, with a local bank, it could be easier to have those in-person meetings where you are talking through your situation instead of just uploading all of your documents to someone you've never met online.

Elizabeth Perez · Answer

Thanks for responding! Both of our credit scores are averaging at 720. We don’t have credit card, medical or student loan debts. We also own our vehicles. We have filed our business taxes for the past three years under our construction company’s LLC. On our Supplemental Income report we are profitable as well.

Will lenders be more interested in business income, supplemental income or would they treat them the same if they are both profitable?  I do plan to have the sale of the home finalized before going to a lender just so I can have the down payment on hand. It’s currently in the market. I don’t believe that the landlord would do owner financing and if he doesn’t want to wait I still want a loan to buy somewhere else, preferably a multi unit.

What type of lenders should I approach? We have grown in terms of properties and profits for the past 3 years.

Marshall Leipprandt · Answer

@Elizabeth Perez Do you have good credit and limited non-real estate debt?

A lender is going to look at a couple things with your history of income, your credit, and your debt to income ratio (DTI) being near the top of their list in terms of importance.

For being self-employed, do you have a history of your combined income as being self-employed on your taxes dating back 2+ years? Since you don't work a W2 job, your lender will want to confirm that you have earned a steady and consistent stream of income as a business owner.

For your rental properties, the lender may include that income if you are cash-flowing assuming you also have a history of that documented on your tax returns for 2+ years. Lenders/underwriters may vary on their requirements here so it could be lender specific. If not cash flowing after taxes/insurance, this calculation will still play into your final DTI which the lender will be looking at.

Do you plan to have the current home sale finalized before purchasing your landlords home? Is your landlord willing to hold it for you? Also, doing some option of owner-financing on your landlord's home could work if they were interested in that option.

I would honestly say the best thing right now would be for you to research lenders and have a detailed conversation with them to understand what they need to see in terms of income, DTI levels, credit, etc. You will learn a lot from this conversation and it will help you understand what direction you should be headed and how to fulfill the various lending requirements in order to pursue your goals.