Ask HN: Freelancers in the US: How do you succeed in getting a mortgage?
6 comments
If your credit is decent you can get a traditional mortgage. It takes a little extra effort but you can still do it. You'll have to provide tax returns and usually around 4 months of bank statements plus a P&L for the business (if you are a corp) but that's about it. Plus of course your down payment proof.
If you have less than decent credit or have very unpredictable income it can be a little tougher, but there are secondary and private mortgage markets to help there and while more expensive they aren't horrible, but a little more buyer beware. I have used this market before for income properties and you will find that there are assholes that try to take advantage of you because they think you are desperate. Then there are those that are there to make a good return but are totally reasonable. If you have to go this route, find a mortgage broker that deals in this market, it isn't that hard and a reputable one will help keep you out of trouble.
EDIT: BTW -- debt to income ration is a little more important here depending on the type of debt.
If you have less than decent credit or have very unpredictable income it can be a little tougher, but there are secondary and private mortgage markets to help there and while more expensive they aren't horrible, but a little more buyer beware. I have used this market before for income properties and you will find that there are assholes that try to take advantage of you because they think you are desperate. Then there are those that are there to make a good return but are totally reasonable. If you have to go this route, find a mortgage broker that deals in this market, it isn't that hard and a reputable one will help keep you out of trouble.
EDIT: BTW -- debt to income ration is a little more important here depending on the type of debt.
Taken from startups for the rest of us, episode 166 transcript.
"[10:19] Mike: When I first started out, I did have a mortgage and to be perfectly honest, if you have a mortgage already, it’s a lot easier to quit your job than it is to quit your job and then go get a mortgage just because the sheer amount of paperwork that the bank will send you in order to get a mortgage if you’re self employed is just astounding. You’re much better off just going and finding someone to pay them to hire you at whatever salary you want and in order to be on their payroll instead of having your own just because banks have this thing about you’re self employed, you’re risky. And it’s like you’re probably making decent money in order to be able to do that."
"[10:19] Mike: When I first started out, I did have a mortgage and to be perfectly honest, if you have a mortgage already, it’s a lot easier to quit your job than it is to quit your job and then go get a mortgage just because the sheer amount of paperwork that the bank will send you in order to get a mortgage if you’re self employed is just astounding. You’re much better off just going and finding someone to pay them to hire you at whatever salary you want and in order to be on their payroll instead of having your own just because banks have this thing about you’re self employed, you’re risky. And it’s like you’re probably making decent money in order to be able to do that."
Two years tax returns. Don't call yourself a freelancer or even self employed. Say "I work for OP Consulting LLC, here are my pay stubs, this is my salary."
Don't do this.
Most of the financial forms now ask if you own more than X% of a company (I think 10-20%), and you must list which one if you do. Plus you sign an IRS form that allows them to pull your prior tax returns, in which case they will likely see the corporation or partnership forms, meaning you just lied to the bank. While rarely is it prosecuted and rarely do you get in any real trouble, it is technically against the law in the US from what I understand. And if nothing else, bad way to start off with the bank.
There are the rare cases like remyp mentioned where you are an employee but own a reportable percentage of a company in which case you still have to disclose it all up front to avoid banks from getting all crazy on you.
You can search for a lot of the rules as many fall under the dodd-frank mortgage rules, and also you can look at the fannie mae guidelines as most banks follow them to protect themselves.
Most of the financial forms now ask if you own more than X% of a company (I think 10-20%), and you must list which one if you do. Plus you sign an IRS form that allows them to pull your prior tax returns, in which case they will likely see the corporation or partnership forms, meaning you just lied to the bank. While rarely is it prosecuted and rarely do you get in any real trouble, it is technically against the law in the US from what I understand. And if nothing else, bad way to start off with the bank.
There are the rare cases like remyp mentioned where you are an employee but own a reportable percentage of a company in which case you still have to disclose it all up front to avoid banks from getting all crazy on you.
You can search for a lot of the rules as many fall under the dodd-frank mortgage rules, and also you can look at the fannie mae guidelines as most banks follow them to protect themselves.
I don't advise lying, I didn't know the forms ask that question. Anyhow, the discrimination against the self-employed is ridiculous, especially with so many contract workers and freelancers out there and the spread of at-will employment means you can lose your job tomorrow even at a large company.
Fair enough. And I totally agree with you that it is tougher on the freelancer or self employed and can be quite frustrating.
To your point, in my experience, when a bank evaluates your tax returns for proof of income, they use the net income, so after all deductions, to calculate your debt ratio. Yet if you were an employee they would use your gross income on the pay stub and then calculate your debt to income ratio. A lesson I learned at the wrong time, it all worked out but what a pain.
To your point, in my experience, when a bank evaluates your tax returns for proof of income, they use the net income, so after all deductions, to calculate your debt ratio. Yet if you were an employee they would use your gross income on the pay stub and then calculate your debt to income ratio. A lesson I learned at the wrong time, it all worked out but what a pain.
This is a little tricky. A friend of mine has significant equity in the company he works for and they spotted the K-1 in his returns. It took a lot of work for him to convince his mortgage banker that he truly isn't self-employed.
Just throwing a crazy idea out there - maybe you can be a landlord of one property then rent another one where you want to live. This gets you in the real estate market, and if you can do it smart you buy where the yield is high and rent where it is cheap.
This assumes you don't mind having and being a landlord at the same time.
This assumes you don't mind having and being a landlord at the same time.
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If you have at least 2 years of tax returns with good credit, then there is not a whole lot of difference compared to the salaried/employed people. You will still need to come up with all the remaining requirements but the 2 year tax return is a must.