Self Employed - Finding financing in an expensive market
To set the stage, I'm self employed with an over 800 credit score. Between my wife and I, our only loan is for our car. We have about $60k saved up in just a couple years and a $100k in a committed gift from family towards the down payment of a house. We have the option to use a VA loan/FHA loan to finance a property. My goal has been to use the gift of $100k as a down payment but to still use a VA loan (allowing us to secure a lower down payment with out PMI or MIP), paging only the mortgage funding fee on the financed amount. We live in Los Angeles, which, as many have acknowledged on BP, is an expensive market.
We've been analyzing deals on 2-4 unit buildings for a few months and think we have identified areas and specific properties that would make great opportunities for a house hack. We think a house hack would provide us the opportunity to live In one unit and rent the others, while paying the same price we're paying now to rent, or a few hundred dollars more, after expenses, Capex, repairs, vacancy (still well inside what's comfortable for us) to get into our own place and start building equity. I believe we'll even be able to cash flow at the end of year one if we can refinance and move out to another multi-family.
the problem we’re running into is financing. I have not been able to find a lender who understands how self employment income looks and who is willing to take the time to understand. The first lenders we approached saw lower income on my business tax return but didn’t take the time to understand that this looks like lower income and high expenses when in reality, My expenses include a salary (to myself), legitimate pre-tax dollar expenses that a W2 employee would pay with post tax dollars (portion of my home rent, cell phone,
, etc.), etc.
What’s funny is that, when I discussed my numbers on the phone initially, I was up front about the nuances of how my income looked vs my after tax take home, and with my proposed lenders in both cases (rocket mortgage) and a local broker, both thought we would be good candidates for a loan, and started quoting us low mortgage rates like 2.3%-2.6%. But, when they saw the 1120s, the private broker started dodging my calls and Rocket mortgage’s rep got rude and told me I had no income so I couldn’t qualify. Then proceeded to make me feel dumb for trying to buy a multi million dollar property with so little money.
I guess my questions are multi pronged:
1. are there specific types of lenders who work with self employed income and will let me take advantage of a VA or FHA loan? Or is it probably not possible with a traditional lender?
2. Is there a better way to showcase my income to make me more attractive to a traditional lender or better explain to them my situation?
3. Am I SOL? Do I just have to wait till I can save more and restructure how I pay myself to show more W2 income as opposed to using the tax advantages of my corporation?
I feel like my wife and I put in a ton of work/time in the last three months to try to make this a reality, to get out of the rat race of renting in LA, and to be pragmatic about finding places where the numbers would work. I’ve found places I want to make offers on and I’m now a bit stuck, without the financing in place. Any advice is greatly appreciated.