Home buying for self employed folks
June 7, 2022 3:33 PM   Subscribe

Is it possible? Can you help us navigate this tricky situation?

My partner and I are just starting the home buying process. We’re first time homebuyers and are located in the Twin Cities, MN. We are both self employed; I went full time with my art business in September 2021. Before this I was a nanny for 6 years while also growing the art business. My partner purchased an already established business / brick and mortar in May 2021. Before this he spent several years selling vintage from home, through the pandemic. We both have longer term “real” jobs in our job history before that.

As we go through the pre-approval process for a loan, we submitted our last 2 years of tax returns and last two months of bank statements.

The credit union contact seems concerned that my partner purchased the business so recently and doesn’t have those 2 years of steady income to show. My partner’s store is doing wonderfully, and my business continues to grow, but those sentiments don’t really have an impact on the numbers we have to show. I don’t think I make enough to have a loan just under my name.

At this point, we are waiting to hear back from underwriting to see if / what we qualify for. We both have credit scores over 800. My partner has no debt and I have 19k on an auto loan, being paid off monthly. My student loans were paid off a few years ago. We have around 30k max to put towards a down payment (although we will likely qualify for a low down payment due to being first time homebuyers).

Have any self employed folks been through this? Are there any tips you could share for making this process smoother? Thank you!
posted by sucre to Home & Garden (6 answers total) 2 users marked this as a favorite
Best answer: I have. It went through each time, but took sending in lots of records. Telling them about any and all assets seemed to make them happy. Last loan I got on refi with new lender was happy I had retirement accounts.

More hassle getting loans is worth it not to have a jobby job IMHO. Good luck with the loan and buying a place!
posted by creiszhanson at 3:52 PM on June 7, 2022

Best answer: We used a company that's a combined mortgage broker and lender; they processed all the paperwork and issued the loan, then promptly (as expected and as they told us was likely) sold it to another bank to service.

In addition to talking to your credit union, you should also talk to a mortgage broker. The CU might not be as motivated to make the loan, nor as speedy with the application process paperwork, as a dedicated broker.

You are not obligated to take any loan that you get approved for. Shop around for the best deal. There are oceans of fees (inspections, title search, etc, omg) but you can negotiate having your broker/lender cover or waive any of these. You should not be paying a "loan origination fee", somebody is getting a nice commission anyway. It's distressingly like shopping for a very expensive used car that doesn't even drive you anywhere.

Since you both have great credit, as long as the loan amount is in line with your demonstrated income, I'd guess you will be OK.

My lender requested a few years of profit & loss statements from my business, and a letter from my CPA signing off on them and saying they could see no reason to expect a change to profitability.

So my tip would be to make sure the sentiments about the strength of both businesses are reflected in actual financial documents generated by the businesses. Keep clearly-legible books in a standard software like QuickBooks or Xero or Wave, and have a good CPA to look them over.

Good luck!
posted by hovey at 4:40 PM on June 7, 2022 [1 favorite]

Best answer: I had to put more down, I had to provide year to date P/L info and show year after year growth, and I didn't qualify for a 15 or 20 year loan (even though I was making almost 3x than when I getting a mortgage when I had a salaried income, ugh), but yes I got a loan. I've heard of others who had to show that their retirement accounts had enough to pay off the mortgage, but my loan guy says it was irrelevant.
posted by never.was.and.never.will.be. at 6:01 PM on June 7, 2022 [2 favorites]

Best answer: When this came up for me years ago, i was told that banks looked for two years of steady income under your current self-employed profession. Less than two years was problematic. But YMMV and I wouldn't let it stop you if there's something you want to buy. It sounds from the comments above that persistence and a good working relationship with a mortgage broker can get you through.
posted by Winnie the Proust at 7:05 PM on June 7, 2022 [2 favorites]

Best answer: I had to search around and find a credit union that was used to folks like us. When we met with the manager of the place the we ended up going with, his first question was, "did a musician recommend us to you?"

Which was in fact, true.

Ask around your area of folks who are self employed artists and where they are financing.
posted by miles1972 at 8:03 PM on June 7, 2022 [1 favorite]

Response by poster: Thanks all! I really appreciate all this good advice. I logged into our pre-approval application and the approved loan amount is much lower than we'd like, so we're going to get a second (and maybe third) opinion and possibly wait to apply until my partner has 2 years of steady income under his belt. Hopefully we can beat the odds and find a home!
posted by sucre at 3:35 PM on June 9, 2022

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