Sunday, April 5, 2015

Mortgage Tips for the Self Employed



Thanks so much guys for having lunch with me last week and listening to me talk about mortgages.  I think it's the most exciting of topics!  Most of you who attended my lunch and learn with the Richmond Business Alliance were self employed, or small business owners, so I hope my advice was helpful for those of you looking for a mortgage!  There are lots of benefits to being self-employed, however, applying for a mortgage can be daunting when you essentially write off all your income.
Here are a few helpful tips we went over at lunch last week:
  • Plan ahead.  Your lender is going to need two consecutive tax returns to calculate your income.  We average the two, so if you make $11,000 one year after deductions and $80,000 the next, your odds for getting the amount you want still won’t be favorable.  
  • Don’t be cheap, get a CPA.  These are the people who can give you the P & L statement that you need and verify the existence of your business.  You cannot file taxes yourself and request a P & L statement from an accountant, it doesn’t work like that.  Let them know that you want to purchase a home in the next few years, and they will also help you plan accordingly.
  • It’s okay if you’ve been self-employed for less than 2 year. This doesn’t mean you can’t get a mortgage.  However, you need to be in the same line of work.  Example, a doctor decides to open his own practice.  As long as you have history in the same field, some investors will allow less than a 2 year history of self-employment income. 
  • Keep your personal finances and your business finances as separate as possible.  If you solely own your company, then yes, you could potentially get a loan using money from your business.  However, if you have a partner, they’re now involved in your loan process. They’re also going to ask your CPA if taking out that loan will endanger your business, which they might not necessarily know.  It is best to keep your personal expenses away from your company.

Hope some of these tips help the many of you looking to buy a home who are self-employed.  Congratulations to Enrique Mendez, who won my summer-fun gift basket yesterday!  I had a good time chatting with all of you!

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