Obtain financing before becoming unemployed?

Question

I would love advice on what to do for financing a first property.

Backstory: I have alerted my employer that I am leaving my job in July. We will be moving to another state-yet to be determined. Basically my family and I are taking a "gap year" to decide what to do in the future as far as our profession. We are hoping for more personal freedom which means no more 9-5. This could be with real estate but that is for another discussion.

We have a decent nest egg to cover the year and retirement, great credit, no debt, but have never owned property. We want to buy a multi-family so that we can pay our mortgage through the other tenants rent.

The problem is that how can I obtain financing without a full time job? Even with our savings I am sure the answer would be no for a typical mortgage.

Possibilities:

1. Do I purchase the out of the area (we are moving for sure) property before I leave as someone who is still employed for now and the future? Will the bank check with my employer and ask questions or do they just check to see if I have been getting paid? If I purchase before we leave I assume it will have to be as an investment property because the bank wont believe its my place of residence since I work out of the area.

2. Do I wait until we move, and make a bid as a place that will be our place of residence? The issue here is that I will not be employed so how can I get a loan?

3. Other ideas?

Thanks in advance. I am learning so much on this blog but I am very confused on how so many people seem to jump into real estate because they lost a job or quit when banks want to see current employment. I know about other lenders but it seems that wont work for a property that we we will live in, at least it will not be financially solvent.

Cheers,

Masiel

Mark Masiel · Answer

Thanks Bill and Wayne, I am in complete agreement and it is a non-issue as I would never be dishonest on such a form.

Looks like I need alternatives or I need to pay rent, or god forbid, a job!

Mark Masiel · Answer

Thanks Pat, thats encouraging-Ill look into it!

Cheers,

Mark

Pat L. · Answer

Don't give up & forget the 9-5.....

We wanted to buy a property ($200k) in another country with 30% down & I was very retired. The income & asset statements from all the free & clear properties we owned (here) didn't mean anything to them (only the IRS can attach foreign investments :)

The first 2 banks balked so we went to a great mortgage broker & had a mortgage with yet another Bank @ 2% higher than the going rate (but I do remember the closing/legal costs were a little high). To our advantage it was a floating rate & we paid very little of the high Int%.  After 7 years we sold it for a nice profit & that broker still sends us xmas cards.

Mark Masiel · Answer

Thanks. Wow, looks like there are real issues here. I would not lie on a form so this might not turn out well. Thanks everyone for the info!

I would like to get into flipping houses but I don't think I will be able to convince a Bank that I am a "self-employed real estate investor" just because I read biggerpockets.com!

I suppose another option is to purchase the duplex with a partner and then pay the difference through my rent.

Bill Gulley · Answer

As Wayne pointed out, a VOE verification of employment has the question on it asking the likelihood of continued employment.

Next you have the ethical issue of saying that is your stated income knowing it won't continue;

Then you have the legal issues, obtaining a loan by deception is fraud.

The risk might be higher than you think. If you get future employment things may go fine. I understand that you have savings, but things can happen to sail right through that. If you have troubles with the property you may not get the income expected. If there is a default, your loan will likely be reviewed.

Loans are reviewed after making them as well. Tax returns and loss of income will surface. If payments are slow or in default the examination can go deeper.

Then if it's discovered that you misrepresented things, you could have problems.

It's irrelevant if you know of someone who lied on a mortgage/loan application or if you know someone who says they know someone who did, or the amount you put down, or good intentions, knowingly presenting false information or obtaining a loan by deceiving an insured lender is a felony.

I suggest you seek other financing options, with your down payment there should be seller financing options available, partner with another, if you have a retirement account you might be able to change accounts and borrow from yourself, seek private investors, do an installment deal like an option to be financed in the future in 3 or 5 years later. If you find a multi-family, you could buy an interest in it with your cash, take over management with an option to buy out the old owner. There are lots of options. All would be better than trying to prove yourself if something did go wrong. :)

Account Closed · Answer

If you need to borrow in order to buy an investment prop or primary residence, do it now! I know several people who have changed cities/states and quit their jobs, but they got their home loans using their employment status and income.  Some got their loans approved and closed weeks before they quit.  Once you quit you are in a barren lending world.  In your case you wouldn't even be self-employed, just unemployed.  Spend the time and money to investigate the areas you are considering and get going on the purchase sooner than later.

Wayne Brooks · Answer

In the employment verification process, one of the questions the lender ask your employer is "what is the likelihood of continued employment for one year"?  If you've already given notice, that's a problem.

James Wise · Answer

Buy it as an investment property before you move. With no job no bank is going to loan you the money to buy it.

Mark Masiel · Answer

Well as little as I can. Traditional 20-25 percent on a property between 100-200. We do not know where we will be yet so the price is hard to determine.

Account Closed · Answer

How much was going to put down?

Joe Gore