I'm trying to qualify for my first home that I will turn into a primary residence and rent the rooms out. As my first investment, I've determined this will be a great way to get started in the real estate world. I'm in the colo springs market and I'm having a little issue with getting approved. I'm trying to qualify for a 30 year conventional loan with 5% down. I've had an LLC business that I've held for the last 4 years or so. The LLC which I created for my side business has generated 20-30k in revenue over the last couple of years. In 2019 I worked a job as a w2 employee and my tax returns showed about 60k from that position. Now in 2020 and 2021, I'm with a different employer making much more but I'm paid as a 1099 contractor to my LLC. The problem I'm having is that the jump from the income shown on the LLC in 2019 is significantly less than what was paid to it in 2020 and skews the 2-year average needed. If the income I made in 2020 was in the form of a w2 or if in 2019 the w2 income was paid to the LLC, I wouldn't be having this issue. My lender explained that I have a few options, one is to wait until I can file 2021 taxes, and then the 2yr running average is adequate. The other being to bring in a co-borrower or cosigner. I'm trying to avoid those options if I can. I have a few ideas that pertain to restructuring how I was paid under my LLC. Any out-of-the-box ideas that don't raise any red flags or are unethical? I'm wondering if anyone has been in this position before and what advice you may have.
Not sure why you don’t want to wait to file the 2021 taxes. In this economy, perhaps the income won’t show as being extremely high in 2021 compared to 2020 ( a lot of us are in the same boat)? If so, could you maybe forego a few deductions you could legally take, if it made the difference in qualifying for a mortgage in a certain amount? This would be to raise your adjusted gross. I know it sounds like sacrilege to not take every last cent of deductions but a small different in a borderline qualification (for the particular mortgage amount you want), to take advantage of a very attractively priced property, might make sense. I am not talking about giving up major tax deductions, but very small ones if it allows you to move quickly on an extremely good deal. Perhaps you could amend your tax return later to get back the deductions, but talk to your CPA about anything you do regarding your taxes.
It’s hard to offer a suggestion without knowing more particulars. Do you have a property in mind? Could the seller wait a few months to close?
Could you get a hard money loan for a year then refinance it with a standard conventional mortgage? Are there any first time homebuyer programs in Colorado with flexible guidelines (don’t assume your loan officer knows about them or the banks you called offer them).
Another idea - since interest rates have been very low for a long time, many retirees have been frustrated with their large bank accounts earning almost nothing. Can you ask around in your personal network to see if anyone wants to do a 1st or 2nd mortgage for at least part of the funds needed? You would offer your private lender all the standard protections (that the bank would get) and pay all the closing costs, but slightly cheaper because no bank fees. This would not be a favor to them, but an opportunity to make a profit.