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Financing as self employed

1,170 Views | 8 Replies | Last: 6 yr ago by SteveBott
IrishTxAggie
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AG
Looking to be educated on this a bit. Will likely be looking to buy in the February/March time frame (Houston ITL most likely). Below is my scenario and I'm happy to go into more details via PM or email.

I'm a consultant with one primary client
Client pays my LLC X and I pay myself as an employee of the LLC. Take the remainder as a dividend to avoid the employment taxes
X is significantly more than my salary
I will not be with this client for over a year by the time I'm looking to buy

I assume I'm not the only person in this situation and I'm just looking for some things I may need to start getting in order. Will likely be looking to get my pre-approval taken care of the beginning of January, but if I come across a place I like sooner, it could move that up.


Thanks
SteveBott
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You need two years of self employed tax returns regardless of client to qualify.
JP76
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Not a lender but I am self employed


Make sure both your gross and net are increasing year over year on your returns or you will get flagged in underwriting and have to justify the decline. Also you may want to run the numbers by a lender before you file 2017. You may run into a scenario where you have to take fewer deductions and pay more tax in order to qualify for the amount you want to borrow.
This will also be determined by if you go conventional or fha. FHA will be more lenient on the ratios but the permanent pmi is a negative aspect of the loan.
texrover91
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Talk to a bank - self employed and qualifying in general can be a lot less hassle with a bank, community banks in particular

I know there is at least one lender on the board in Houston - but do a GIS for community banks in Houston and inquire about their prequal requirements
Texker
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Steve,
Thanks for taking my call tonight. Appreciate the advice and conversation. Will be in touch in a day or two.

W
MAS444
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For self-employed income qualification, they take the W2 wages plus/minus business income/loss...right? So if you show a profit for business, that's added to W2 wages, right? And vice versa.
SteveBott
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No. they only use personal tax returns so you have to report on the 1040. For current year they will ask sometimes for a P&L statement for the current year that you or a cpa can do.
MAS444
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What number do they use from 1040 though? The W2 number or AGI (which takes into account business loss/profit)? I assume the latter. Have lending restrictions loosened at all recently for the self employed? I read an article yesterday that said so...but didn't know how accurate that was.
SteveBott
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AG
I've not seen it but I will ask my account exec from a lender I trust and get back to you. The mortgage market is pretty brutal on self employeds.

CPAs cut up their income which is great for tax purposes but leaves me skinny income.
SteveBott
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AGI on the 1040 and some modifications of that depending on the return. Using last two years and if income increasing average the two. If income is declining they use the lower of two. Again SE have a much higher bar then employed W-2s.
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