No Interest in the Self Employed

15 Replies

Hello,

So I'm brand new to REI and in fact cannot truly put the "I" on the end of that acronym yet. So far I have just been researching and trying to take in as much information as possible. I realize that you study all you want but at some point have to take the test and most likely will never feel ready for the first one, so I decided to get my feet wet. The plan that would best fit my conservative nature for my first deal is something along these lines... I would find a property that between the purchase price and the initial cost to get it in rental ready shape would be something that I could pay more than 50% of with my already liquid cash leaving some in the bank for any reasonable personal issues that might arise and not having to touch anything in my not so liquid investments. The less than 50% of debt would also have to be something that I would be able to pay off very fast, i.e. if I thought it might take close to a year I wouldn't be interested (note: this debt repayment is calculate by my work checks and is completely independent of the investments performance or lack there of). So when I saw an opportunity and I knew that I would need to secure some more capital I called the mortgage people. There was almost no conversation, it went very quickly to "Oh your self employed. Well we, and all other mortgage people, will not be interested in talking to you for 2 years. But, while you wait the 2 years here are some things you can do to build credit...." I found this almost comical considering that I can pay my debts better than others that they would probably talk to and approve. Is switching from a w-2 to a 1099 position really that big of a deal that regardless of how much money I have or make I can't even be talked to or considered. If so, what options are people in my position pursuing? For the record my credit score is excellent.

Thanks,

Zac 

@Zachary C. I feel your pain. I'm self employed and own my business as an S-corp, however I just opened 1 year ago, so I am ineligible as far as any residential loans are concerned (was looking at buying  a duplex with a 203k.) While you may be able to pay your bills better than most employees, the bank still has no way of knowing if your business is going to close it's doors 6 months from now until you've proven yourself.

What is your business, if you don't mind my asking? 

Lending institutions qualify you for loans based on Fannie Mae and Freddie Mac regulations. Once they qualify you for the loan, it can then be sold if they follow the guidelines. Most lenders can't afford to keep lending large sums like mortgages, so they sell them in order to be able to generate more loans.

A local bank may offer portfolio loans, which means the lender keeps the loan in their own investment portfolio, rather than selling it. They may be willing to waive FM guidelines, or might stick directly to them, but they have a lot more leniency in their qualifications. Have a larger downpayment will make you a more attractive bet. 

I'm in the same boat as you are. Start a conversation with a local credit union or small bank in your area and see if they offer these loans. Then begin a relationship with them.

@Zachary C. the loan type to look into is a Commercial loan for Residential property. @Mindy Jensen mentioned a portfolio loan, which is a type of commercial loan. Just call around and ask to speak with the commercial loan officer, then ask if they do commercial loans on residential SFR or 1-4 unit. They have much more flexibility regarding your personal world and can more easily be convinced to let the numbers speak for themselves.

Good luck!!

Hi Zachary. This issue that you speak of is exactly why I started looking into alternative financing options. I have been self-employed for over 10 years now and I plan to stay that way. When I needed some capital to keep things going, I couldn't get it from the bank, even though my score was over 700. I found out that there's a whole market out there that I knew nothing about. I looked into my options using alternative financing and I got the money. I have since become a broker for 2 alternative financing companies that offer personal funding, business credit and credit repair . I am not trying to "peddle my wares" on here but just want other people to know that sometimes we have to think outside the box and there are options out there. I wrote a free report that you can get at: www.yourfundingnow.com. I hope this helps. 

Originally posted by @Zachary C. :

Got a commercial business loan for residential investment property and my first SFH rental property! Thanks for all the advice.

 Hi Zachary C.

What lender did you use for your commercial business loan?

Thanks.

Hey Zach , You may have already stumbled upon this info but if not there are actually some programs that focus specifically on self employed borrowers. Having dealt with these alt-Doc products for the past couple years, I Work closely with self employed borrowers, Borrowers dealing with recent housing events, and real estate investors to help find alternate loan programs that fit their particular situation.
I love finding out from investors their take on what financing options they are currently utilizing for their properties, as well as just being a resource in general . Below is a little about the alt-Doc program made for self employed:

Self employed borrower program: use bank statements ( either personal or business) to source income rather than tax returns
- 24 months personal bank statements
Or
- 24 months business bank statements

Calculation is based off of 24 months of residual, sourced deposits. The calculation will take out transfer deposits ( seen as co mingling) and un sourced deposits, but outside of that it's a pretty simple calculation.

Let me know if you have anymore questions though!