How to qualify for a house hack without w2? - Denver, CO

[Clayton Hepler]

Looking to maybe house hack in Denver next year but just left my W2 job. I have decent income from my real estate investment business in my home state but much of it is wiped out because I have some larger apartment buildings which I depreciate. 

My wife does have a 90k+ job but this won't go so far in Denver for buying a good house hack. I'm investigating starting a solar business out in Denver too, but not sure if that will help me at all because I will be 1099.

Any suggestions?

[Ryan Williams]

Hey @Clayton Hepler being a 1099 myself I'm exploring this same question. Everyone's situation is different, and all of these scenarios may not work for your scenario but here are some ideas:

Co signing - if a parent (or someone else) would be willing to co-sign with you - that can help you qualify for a higher purchase price. 

Bank Statement Loan - these kind of loans will look at your assets and the last 12-24 months of your bank statements and calculate income based off that, but rather than getting a 3-5% down payment like a conventional/FHA loan you're looking to bring 10-20% down with this kind of loan product.

Paying yourself a w2 from your business - if you have the option to restructure your business into an S corp you can pay yourself a salary - if you're a single member LLC and that's where most of your income is coming from there may be some tax benefits of going this route as well (I'm not a CPA so I would consult a professional before you just take my word on that lol)

I hope this is helpful!

[Jay Voorhees]

Hi Clayton - a few thoughts here:

1) Conventional loans will add back depreciation when looking at rental income. These include insurance, mortgage interest, real estate tax, depreciation, amortization, and any HOA dues and can be added back to the NET of what you reported on tax returns. If you are looking positive after this, I'd recommend having a local lender run numbers for you as you may be able to qualify

2) While the $90k from your wife may not qualify alone with what you are looking for, paired with the rental income, it may push you where you want to go. 

3) Future rental income of the subject property can be considered for conventional financing if you chose to purchase it as an investment instead. Ideally, this would mostly offset the future PITIA of the property you are looking to purchase. 

4) Unfortunately without a 24 month history of 1099 income, you cannot use this toward qualification. 

5) See if another family member would be willing to cosign with you (as mentioned above)

Best of luck!

[Ben Einspahr]

@Clayton Hepler Looks like you already have some great advice from @Ryan Williams and @Jay Voorhees in regard to options moving forward. Your next actionable step would be connecting with an investment friendly lender to help put together a business plan and see what your options are- even if you still are 12+ months out from being able to purchase. Feel free to reach out if you are looking for some local recommendations.

Best of luck!

[David Mackin]

Have you exhausted the option of using your wife's income?

Adding back depreciation like @Jay Voorhees said above is absolutely your best option to explore.

Even then, it might be worth seeing what you can get form the 90k income. Assuming good credit and a 50% DTI let's look at a calculation:

$90,000(Income) x 0.5 (50% DTI) = $45,000
$45,000/12(Months) = $3,750 

$3,750 is your perfect scenario monthly payment.

Subtract out any revolving monthly credit and that's a good rough estimate to the monthly payment you could qualify for.

$3,750 gets a decent amount of house, even here in Colorado.

[Kayla Givens]

Hey @Clayton Hepler! Congrats on choosing Denver - it's an absolutely amazing city and the growth year over year continues to amaze me!! 

Echoing what everyone else has shared - I would definitely see what you could do with just your wife's income as well. Depending on your debt-to-income ratios, you could probably afford a nicer home in the Denver area - it really just depends on your preferred location, criteria, rental strategy, etc. I'd definitely chat with an investor-friendly lender - @David Mackin is a great resource in the Denver area, and I have a few other lenders I work closely with that might be able to help as well. I'll shoot ya a DM!

[Zach Wain]

@Clayton Hepler - Keep in mind lenders can add back depreciation to your income as its not a true expense.  But if you start a business and pay yourself a W@ as Ryan mentioned, you still need to wait 1-2 years for tax returns to be able to use that income.  Its not the same as being a normal W2 employee with no ownership stake.

With a $90k job, some real estate income, you should be able to qualify for a decent sized loan.  If you go for a 2-4 unit, we can count rental income from the other units towards your qualifying income.  I would recommend talking with a lender and working on an early pre approval now so you know your options.  We are licensed in Colorado.

[Matt M.]

How much cash do you have? I have a triplex that can go owner carry. There are quite a few other owner carry homes out there if you know where to look.