How can an entrepreneur/freelancer get a mortgage?

Question

Hello everyone,

I've been thinking about buying a house for the past year. I saved up enough cash for more than 50% down payment, but the main problem is that I am a freelancer and I try to write off as much expenses as possible. I've heard about some gruesome story about how the bank will request details of every client etc before even considering you for a mortgage. What steps can I take from here? I don't mind a higher interest rate as long as its reasonable and I have extremely good credit.

Thanks everyone

Tim Cronin · Answer

It's brutal.  I'm a freelancer too, and my first deal nearly fell through because of it.  Tough it out and be persistent.  If you want it bad enough, you will find financing one way or another.  Don't take it personally, it's game and unfortunately you have to play by their rules.  I know it seems like it would make it easier if you put 50% down, but that isn't necessarily the case (and arguably maybe not desirable...).  Lower balances actually lead to higher interest rates.

Good luck

Wilson Pe · Answer

Thanks everyone for the reply! I was talking to a very close family member about this and she noted that she could help me co-sign, which should help, but might still be difficult.

Shad Dixon · Answer

I think you need to find a good loan person who understands your situation and is willing to work with you. Finding that good loan broker is KEY- someone who will put in the effort to add back in the depreciation and all that to come up with your real income.

If you haven't had income, though, good luck, because even the hardest working loan professional probably won't be able to help you.

Good luck & I hope you find your loan & property.

Xing Zhu · Answer

I'd just talk to banks to see what they want.

Matt M. · Answer

You might talk to your local bank as well. Sometimes they can be a little more flexible if they are keeping the loan in house.

Rick H. · Answer

While it can certainly be more of a hassle to get a mortgage when self employed, it can be done with enough documentation and a loan processor and underwriter team determined to help you.  A mortgage broker might fit the bill better if you don't have a strong, established bank relationship.

@Wilson Pe, alternatively, I suggest you take a step backwards and reflect on why you think you want to obtain a conventional mortgage.  I know it seems rather obvious, that you want to buy a house, however you ought to consider the difficulty as a blessing and focus your acquisition efforts at buying with seller financing.  Of course, it doesn't help that you're in San Francisco, however I do deals in your city (from So a Cal, mind you!) and motivated sellers can be found everywhere, if you know how to attract them and have the tools work them.

I've made much more money from learning how to solve problems. Your problem isn't how to get a mortgage; it's how to buy or control real estate for profit.

Bill Gulley · Answer

Welcome to BP, Wilson.

For any conventional loan tax returns are used to establish the income for self employed persons to qualify. You can write off all you can if you like to lower your tax` obligation. However, an expense lowers income, so what's more important, writing off every little expense that has little impact overall or qualifying for a loan? Now, I'm not suggesting you pad your real income by not taking normal expenses, as that is fraudulent. But, if you're saying you must stay at the office to have lunch and trying to write off part of your groceries you might reconsider that. You might also look at variable expenses that might be paid in the next period, all though you're looking at least two years returns a lender may ask for three. But, you need to give an accurate picture of your income and remind the lender to add back depreciation as it is not a cash expense.

You might consider other lenders, private money or an HML but your rate will be higher and it won't be forever, so you'll need to qualify later on. Another point, I'd suggest you not put down all you can, 30% should be sufficient, you need reserves. There isn't that much difference between 50% and 70% loans if you have good credit, unless you need to put more down to lower the payments. Might consider too buying the interest rate down instead of putting the money down on the home as that may bring the payment down to qualify. Good luck :)

Stephanie Dupuis · Answer

Hi Wilson -

I'm in the same position and have had no problem getting a mortgage. Here's what I've done, and what typically needs to be done. Others will chime in with their experiences:

• Report all income on your taxes. You need to provide at least two yrs. tax reports. Deductions are no problem. My reportable income has been low at times and my banker simply explained this to underwriting.
• You may need to see several bankers/mortgage brokers. Find one that has the capacity to work with you. Some are better than others. Get referrals from your agent or other REI, entrepreneurs, etc.
• Have your business docs (some want to see licenses), 2-3 yrs. tax reports, 2 mo. bank statements, ready to show/copy for lender.
• Hold of on major purchases during the lending period. The banks don't like this for most people, especially us.
• During underwriting, there are sometimes some hoops to jump through at the last minute - I've needed to run to the bank to verify where money went, where it came from, etc. This takes some time, but it's time well spent and really is a small hassle to be able to get a loan for an investment property.

I've been able to secure low interest rate loans. So, if your you're reporting your taxes, have plenty of savings and a good credit score, your interest rate should also be good.

Excited to hear how this turns out for you. Let us know if you have questions.

John Rooster · Answer

Provide 2-3 years of tax returns showing your income. Unless "I try to write of as much expenses as possible" is code for "I show hardly any income". Next best option is what is commonly referred to as Stated income loans. Historically they are around 70% LTV with interest rates about 2% over market mortgage rates, but I don't know of any lenders currently offering said Stated Income loans. Maybe someone else does.