The house sold, we think, so this might be moot, but I tried to get a mortgage. Actually, I just tried to get pre-approval for a measly 200K.
Talking to the first two agents was like talking to a monkey with a teleprompter. Self-employed businesses have to be open two years, and Senor Dog is technically at 1 yr 8 months. (That's when we made him an LLC.) So, in four months his pumpkin magically turns into a carriage and his income counts.
One tried to shove us into an FHA with our parents co-signing! We show up with 50K in cash and 100K in income, and they shove us in a deadbeat mortgage!
One told me just to go get a 40K W2 job, then quit it. Nice. So, a 40K job for a few weeks is worth more than Senor Dog's business (and his ongoing contracts!) because it has a W2? Why on earth is a W2 more secure???? Mine sure wasn't.
So, I asked some friends with a more exciting situation. Foreigners who had no credit score and yet had a mortgage and a mortgage for a vacation house. That agent said it wouldn't be a problem and gave me the pre-approval we needed.
There's something deeply wrong about some lousy W2 job counting for more than Senor Dog's unique skills and his customer list. He has employees for crying out loud! But none of that matters to the mortgage monkeys. One said that we were in 1970s lending mode. I'm pretty sure in the 70s they had their brains screwed on to see what a successful entrepreneur looks like.
I honestly think it would be easier to get 200K in credit cards than a 200K mortgage.
Wednesday, May 27, 2009
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23 comments:
Hi
I feel your pain. I was in the same situation.
I make 120-150k as a self employed consultant (sole proprietorship) , my wife wife makes ~45k as a teacher. It was so much trouble one broker wanted to just put my wife on the application for a 250k mortgage...
In the meantime (and at the right time) , I got a gig payed as a W2 : same work , hourly paid - not full time and suddenly everything was fine -- nuts.
so taking a W2 job would work but it is craziness.
This was 1.5 years ago and for some reason this year we refinanced and it went without a itch (with my 2 last tax returns)
You said that your husband is 18month in a LLC , did he had self employed income before that ? may be you can show that.
For refinancing ,I found my broker on zillow , that way you may be able to reach more brokers and one willing to help you - it sounds that they don t want to do the extra work to document your income...
if you want to be really annoyed - read this story http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1
Mortgage lenders are being particularly tight-asses these days due to the credit crisis.
My wife and I recently refinanced our home, and we felt like we were put through a full rectal examination, even though we make over 100K, have tons of savings, and never paid a bill late in our entire married life. Contrast this with when we bought our home in 2002, when the mortgage company practically begged us to sign with them.
They say now is a good time to buy a house, but you wouldn't know it by talking with some of these companies.
Ironies:
"Measley 200K" - since when is $200K measley? You don't have $200K.
"Lousy 40K W2 job." I've never heard of a salaried job referred to as a W2 job. What's so bad about a steady $40K coming in? It's better than the salary you have coming in right now. You have to understand how you'd feel about it if you were on the other side of the lending desk.
Look, if your husband's business made so much money, then you'd be able to buy a house with cash, right?
This seriously reads like a journalist's attempt to chronicle the changing financial climate in this country. I can't believe a real person would be so caricatured in her outrage that easy money is not available at her fingertips. When no one in the house has a steady job! Of course lenders are going to be more wary of self-employment, for obvious reasons. It can be extremely variable and unpredictable in its profitability, and harder to prove to a third party than a salaried job. By the way - again, you want us to think that Senor Dog is such a successful entrepreneur, but you can't tell us ANYTHING about what he does?
I wonder if this comment will get published. About half of the non-complimentary ones (that I've submitted) never make it.
Your writing style is in its funniest fine form today, btw. I liked the images of the monkey with teleprompter. How true, when dealing with institutions that lend money. (And your commenter's likening of a mortgage approval process to a rectal exam was humorous but again - what does anyone expect? It's a lot of dough to just hand out!) And I do sympathize with the technicality of "2 years, and not a month less" for a business. Overly rigid on that one, I agree.
It would be a lousy W2 job because I was supposed to only have it a few weeks! That job (for a few weeks) is considered more stable than building our own business we put our money and sweat into.
And yea, 200K approval is measley for 100K in (take-home) income and 20% down. It's not like I was trying to buy a half-mil palace like that idiot in the NYT did.
Oh, and if you want to publish more nasty comments, show yourself. I offer no deference or apologies to anonymous cowards.
I would agree that 200K is, well, measly when you are making even 80K. But it's all relative - for some, it's a mountain. I'm sure, for some, my 450K mortgage is measly. It's feel pretty damn mountainous for me.
Anyway, I expected you might have this problem. Back in '03, I was self-employed (for less than 2 years, making I think like 70-75K or something) and had no problem getting a 200K loan. Now it's a totally different ballgame. An irrational ballgame seeing as the millions of jobs lost this year are W-2 jobs. But the pendulum has swung back from irresponsibile lending to hyper-risk-sensitive lending.
Well, it wasn't me leaving nasty comments. I guess it's hard to tell the anonymouses apart.
Come to think of it, I think the only one of mine not published (and I've only left less than 5 or 6, I'd day) was one inquiring as to whether you'd been fired with cause, since you feel so strongly about not picking up unemployment benefits. Wasn't meant to be nasty... I've known others fired with cause (and I guess I have been, but it was long ago and not an important job at all - we're talking teenage years) and you did say that some deals went bad and you were blamed. Rightly or wrongly, I thought your employer might have given you the shaft which makes it doubly difficult when applying for benefits.
Many people don't like to leave names on a high-traffic blog so that trolls don't follow us back to our own blogs.
Why doesn't your husband just pay himself a regular paycheck and then he will get a W2. Technically I am self-employed as I work in my family business and own part of the company but because I get paid a regular salary the mortgage companies don't care. Maybe it is more difficult if the money comes in sporadically?
I highly doubt you would even qualify for a mortgage having a job for a couple of weeks. I know that is what they told you but I doubt it would work. Like David said, they put you through a rectal exam these days (just went through refinancing so I know what that is about) and I don't think a job held for a couple weeks would fly.
I guess I never realized your husband made 100k. Makes some of your complaints about things a little more difficult to believe. Especially living in Texas and having such a low rent.
Wah, wah, wah. You like you have a right to be loaned money. No one has to loan you money if they don't want to and it appears most of them didn't.
Self-employed income is notoriously unstable. That's why no one is willing to put much faith in what you CLAIM you will make this year. Do you really expect underwriters to try to determine the feasibility of your business model and predict what you might make if all the stars align? They're not going to do it which why they like to see two years of business and will ask to see tax returns verifying the income as well.
AH - there's the attitude I've missed.
A FHA mortgage is not a deadbeat mortgage - that was kind of a crappy thing to say.
Measley 200K? Oh to have such a view of money. With your income it is reasonable - but not measley.
Here's the problem - you have the attitude that the banks owe you a loan. But they don't. It's unfortunate that their rules are making things difficult, but if you don't like them, then save up the money and purchase a house in cash.
Banks are business and they have to hedge their bets - after this debacle they're really doing what they should have been all along.
It seems at first glance that getting a job for a few weeks and quitting is a ridiculous thing to help you qualify - statistically speaking people DONT get a job to qualify for a mortgage and then quit - chances are if you go get that job you would retain it.
And the 2 year limit for business -again statistically most business fail in the first 2 years.
There is never any guarentee that someone isn't going to lose their job, or face expensive medical problems so on so forth. But there are statistical models that are used (well they were supposed to be) to reduce the risk to the bank.
The lending standards have gotten much stricter than 2 1/2 years ago when we got our mortgage. My husband had his job for 2 weeks and I didn't have a job. He was making about $10 per hour and we got a $140,000 mortgage. Granted, we did have 20% to put down but you have 20% to put down as well.
Contract for deed has become much more popular. You might pay a little more in interest but it could be an option worth checking into.
I think that the reason why they don't give self-employed people the credit they rightfully deserve is because it can be pretty easy to make the numbers what you want them to be. It doesn't take a genius to show several thousand more on paper than what is actually being taken in.
200k is more than my mortgage, so it isn't measly to me. My mortgage compared to my in-laws is several times what they would consider sane. The numbers are all relative depending on where you live and how much you make. What I see being the problem is only numbers are considered.
You need to find a mortgage company that does manual underwriting, the kind of people who evaluate the person, not this "live or die by the rules" that you have been sucked into. A lot of banks are very nervous about self employed people not being in business very long. You don't need a 40k W2 job (again, could be quite a bit of money to some) just to matter.
If the house has already sold this is probably a moot post or something to file under experiences. All these Anonymous comments are getting kind of annoying too. Create a blogger account and 'hide' in the open like everyone else does. I enjoy reading your blog and get extra value out of the comments.
R. May said it better than I could.
Dog, your blog entires seem to swing between bragging and whining about how tough you have it. I know you're only in your mid-20s but time to grow up and show some maturity.
I'm single and self-employed as well... they told me the same thing... get a job so I'd have a W2 and quit after 30 days. I said I wouldn't do it because of that little thing called integrity and that I thought that it wasn't fair to take a job and quit... I was told I don't want the house bad enough. WTF?
"But none of that matters to the mortgage monkeys. One said that we were in 1970s lending mode. I'm pretty sure in the 70s they had their brains screwed on to see what a successful entrepreneur looks like.
I honestly think it would be easier to get 200K in credit cards than a 200K mortgage."
I believe NEITHER cc or mortgage debt should be EASY to get!
Frankly, if we went back to 70's lending mode we wouldn't have the mess we have now in this country!
Getting a home mortgage USE to be as intrusive, as someone else put it, "a full rectal exam". It was a long process and they scruntinized everything. They did MANUAL UNDERWRITING(something you can't find the mortgage lenders doing nowadays). By using Man. Underwriting you had a BETTER chance at getting a mortgage if you had an irregular income(ie-self employed). This cookie cutter crap lending helped create this financial cesspool.
Getting a loan SHOULD be difficult.
That's how they use to weed out who isn't a good credit risk.
My co-op building's examination of my finances to see if I was a qualified buyer was essentially a rectal examination. Meanwhile, the bank was flinging more money at me than I could possibly afford to pay back. The rectal exam was unpleasant, but I think it's better all around to go through that before obtaining credit of any kind.
When your parents have to cosign for you, especially when you have/make as much as we do, that's a deadbeat mortgage. Nothing else to call it.
Actually I disagree.
A deadbeat is someone who doesn't pay their debts.
FHA loans help teachers, firefighters, 911 dispatchers, nurses, military (although many use the VA) gets loans that they might otherwise not get - notice I didn't say they can't afford.
I like having a police officer live near me. In fact I'd rather have a police officer then a banker, lawyer or entreprenuer.
The requirement to have someone cosign has nothing to do with FHA loans - they can be had without a cosigner. It is however a for people in certain situation - not so great credit history, short credit history, non-traditional employement - to qualify for a loan. You can find banks require that on more types of loans then FHA.
I'm not saying that all who go the FHA route are stellar individuals. But to intimate that only deadbeats apply for those when we are surrounded by lots of non-FHA loans defaulting and that's something YOU might have qualified for, and I certainly wouldn't call you a deadbeat, well that taking a whole category and making a blanket statement.
I don't really care if FHA in general is for deadbeats or not. When your parents are cosigning, you're a deadbeat.
There is no way my parents are cosigning for my house. No way.
I totally agree with the deadbeat feeling of needing a co-signer. I've been making it just fine in my little self-employed world for 6 years now, and my credit score has always started with an 8. But I qualify for nothing on my own.
As for your Commenters - you have the highest number of true, quality comments of any blog I read. I just learned something about manual underwriting...the kind of info that really could come in handy one day.
100K take home income can go very far or go very short depending on how much you save. You CAN live beyond your means with 6 figures income.
I think sometimes you get so blinded by how much take home pay that your husband bring that you can't think clearly (ie. entitlement). An FHA loan is not a dead beat loan. It's an easier loan to qualify for and requires low minimal deposit. You only need 3.5% down and can ask sellers to pay your closing costs for you. What's bad about that? That's more money that you can save.
Wow does this hit home. I found your site because I am in the same boat. My partnership has existed since late 2003. I had great years in 05, 06, 07 and, so far this year exceeds all previous years combined. However, 08 was a bad year (negative income). As a result of ONE bad year, I am having a hard time qualifying for a 700,000 loan, even with (1) 30% down, (2) nearly 600,000 in cash alone in the bank (not counting other investments), (3) a husband who makes over $100,000 year salary (W2), (4) credit scores of 791 (me) and 823 (DH), and (5) a 20-year track record paying the mortgage on our current home. We want to keep that home which has a ton of equity and which will rent for nearly double the mortgage, which is apparently another thing that is bugging the bank. They want to see that it is rented, but we can't rent it until we find-- and move into -- a new home, so the house counts as a liability rather than an asset.
The irony is, the bank only needs to see about 60 k/year from me to qualify us. The money I have made this year alone, if spread out over the 6 years we have been in business, adds up to well over 60K a year, but that reality is lost on the mortgage monkeys. All they see is that I had a bad year last year; everything else is meaningless to them. Something is really wrong when a person in my situation can't qualify for a basic home. (I am in CA, where, sadly, a million dollar home is truly just basic.)
For those of you who were quick to accuse self-employed people of overstating their income (and suggesting that this is the reason banks are reluctant to loan SE people money), you don't understand how the loan process works. Banks don't merely accept your word re income earned -- you have to show them the money by providing copies of at least two years worth of tax returns along with bank statements. I suppose it is possible to report fake earnings for a couple of years with the hope that, eventually, those fake earnings will help you get a loan, but that doesn't make economic sense, and for good reason: the IRS would tax those fake earnings, and the IRS does not accept fake checks as payment.
The situation sucks. We have always been responsible and have never overextended ourselves, yet we are screwed because too many other people were highly irresponsible, bought more house than they could ever possibly afford, did so with little down, than walked away from their homes when the market went south, causing the banks (who were stupid and greedy for making those loans in the first place) to tighten the credit market. GRRRRRRRRR.
You have to see through it all to the truth of the situation. Lending company's borrow money to loan it out, when they can get alot of money for a low interest rate (the fed) then they buy up a bunch of it and the terms and conditions lighten up. When they can't or the possibility of getting stuck with a bunch of money they can't lend exists, they tighten up. They monkeys on the phone don't understand this or care, they are just doing what they are told.
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