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Profile picture for ard9000

I own a business and I am a W-2 employee of the business

I own a business and I am now a W-2 employee of the business. The previous two years (2012 and 2013), I took draws from the company as 1099 income, which was slightly more than my W-2 income will be in 2014 (adjusted for self employment tax).  I will qualify for the mortgage on the debt-to-income ratio with my W-2 income alone,  assuming total mortgage payment + other debt has to be under ~30% of gross, not including the profit from the business. For simplicity sake I would prefer to keep the business out of the process if possible. 

My credit score is ~760.
I have no debt (I pay my credit cards off every month, no car loan, student loan paid off)
I'm looking for condos in the $375k - $425k range
I plan to put down at least 20%. Possibly more if it helps my cause
If it matters, my W-2 income is about 40% of my total income. I'm buying well below my means. 

What kind of hoops am I going to have to jump through? I'm planning to purchase in the summer of 2014. 

Even though I have a higher down payment, will a FHA loan require less hoops? Maybe just regular hoops instead of flaming hoops. 




 
  • January 25 2014 - Bucktown
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Answers (19)

Stay away from FHA if you can.  You won't be able to keep the business out of it so  would just dive in once you complete your 2013 taxes.  Get a full approval where the underwriter reviews everything upfront so you can avoid the last minute hurdles that so many self-employed borrowers run into.
  • February 18 2014
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Not sure where you are located but if this is going to be a primary residence for you , I would suggest 25% down if buying a condo.  Conventional standard is normally that for a condo however you may find a bank that could be able to do 20%.  If your business did not have a loss reported on the tax returns then you would be hit with the loss average, and therefore should be able to qualify based on the salary. Just keep in mind that because you are self employed, regardless of salary, you own the business and are responsible for the expenses of the business - meaning any loss if applicable.  it is best to get your tax returns reviewed by a lender, and of course ask about the down payment requirements of a condo, as they are treated differently than single family.   Good luck.
  • February 11 2014
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Profile picture for bumkeun
The only person who should give you advice on this is a lender. They will be able to assess your situation and let you know which is the best plan for you.

Your debt to income ratio does not seem to be an issue from what I am reading but since you own your own business, there may be some small hurdles to jump over..that aren't on fire.
  • February 11 2014
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Profile picture for shapiroamg
You should be speaking to this guy:

http://www.zillow.com/profile/John-Paunan/
  • February 06 2014
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Reach out to a mortgage lender and talk to them about this. Only a mortgage lender will be able to walk you through your options.
  • February 06 2014
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[Spam deleted by Zillow moderator. See our Good Neighbor Policy for information.]
  • February 05 2014
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If you are using Conventional or FHA financing, the lender will review the income the same.  The lender would need to analyze your personal and business tax returns as well as your W2, 1099 and K-1s for the past 2 years to determine what income can be used. 
  • February 05 2014
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Profile picture for JustinLeffew
I have never had a loan that had zero hoops to jump through. Stay away from FHA if you have 20% down. You'll need your last two tax returns, including K1s showing business income. You're overthinking it. If your debt ratios are low and credit is high, it's really fairly simple and you should have no problem. 
  • January 28 2014
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You will most likely need to include your business and all the official documents and tax records that are included with that as well as the W-2 documents as well. Also, have you considered a stated income loan? This may be an option you want to look at for your situation. Instead of using the past two year tax returns to verify income, this type of loan will use your last 12 months bank statements to verify your income. If this sounds more convenient for you, then you should look into it. The best thing for you to do is to speak with a lender such as myself to see if you can get started on financing a new home. If you have any further questions or if you would like a loan, feel free to contact me.

Good Luck!
  • January 27 2014
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Profile picture for Evelyn S. Fred
I'd like to recommend my preferred and very good lender [spam and promotional content removed by Zillow moderator, see our Good Neighbor Policy].  Let her know I recommended her.

Good luck!
  • January 26 2014
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Your scenario is so complete that it seems that you understand the process better than some Loan Officers.  I have to agree with a lot of the answers that are listed here. There is no way to get around the "hoops" of obtaining a home loan, the differences are simply whether or not the hoops are flaming. 

Based on your information I think the only snag MIGHT be your DTI (debt-to-income) and I only say this because as much as you might want to simplify the scenario and keep your business returns/information out of the underwriting process they will have to be included.  If someone tells you that the business can be left out, I think they are misinformed.  Self employment is just a little more complex, but basically if your business is on the upswing and it is netting a little more each year and the deductions don't outweigh the profits then you should be able to buy based on your w-2 income. (This is simplified but you get the idea)

If you prepare yourself to provide all of your documentation and do provide two years of returns the process shouldn't be too painful.
  • January 26 2014
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John gave a good answer, If you are W2 from your own company the only method to qualify your income is to review personal and business returns in tandem. This protects against a scenario where an inflated W2 is used while business losses are present. It will be OK if the method you compensate yourself changes year to year, this all balances out when reviewing both returns. Be prepared to submit 2 years of each return.
  • January 26 2014
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The best place to start is an online application where you can get qualified immediately. This way you get an actual next step in the refinance process. An automated underwriting system will eliminate the initial phone conversations and allow you to work at your own pace. This way your first conversation with the banker is to discuss your "actual" available options based on the information you submit. You are removing the "I will get back with you later" from the process and because you do the information input yourself it is more secure than a traditional phone application. Our system actually underwrites your file and provides options once complete. Take a look at our profile and let us know if you need further assistance. 
  • January 26 2014
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Profile picture for Arizona Mortgage Pro
Unfortunately, based on the info provided, you will not be able to keep the business out of the transaction. Since you are more than 25% owner (a question you will have to answer during the application and approval process), the underwriter will require personal and business tax returns. The income calculation will be done from those documents, not straight off the W-2s. 

It sounds like you are well qualified, so I would recommend gathering up the paperwork and preparing to open your books as much as required by the underwriter. If you already have your tax returns handy, that is the lion's share of the work and there will be fee flaming hoops to jump through (see what I did there?). A CPA audited profit and loss statement may be required (depends on the lender and situation specifically).  

Best of luck with the new financing. 
  • January 26 2014
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Profile picture for Matt Laricy
I have a great lender you can talk to you about this. They will need a little more info to let you know about an approval.
  • January 26 2014
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I really appreciate your sense of humor! I got a chuckle out of your comments. Regarding the circumstances in your posted question, I have been a Loan Officer for over 20 years and I can tell you with 100% certainty that self employment is one of most misunderstood areas of qualifying. I have heard from countless clients over the years that this LO said thisand that one said this. Most of which is totally incorrect. Both FHA and Conventional Loan Programs have SOME parallels, but also have some distinct differences.

So making the decision to apply for either one takes some careful and thoughtful examination and this is where dealing with a Rookie Loan Officer can cost you dearly. There are some tactics regarding self-employment that most LOs don't know. Please feel free to contact me by clicking on my profile and I will be more than happy to offer you some sound information so you can make best decision for you particular situation.

Best of Luck!
  • January 26 2014
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You have obviously done a lot of your home work regarding the mortgage financing guidelines, but unfortunatley your DTI will be based off the average of your past income (business and personal tax returns). Present income will only be there to prove you are still in business and staying profitable. Anyone who is self employed will have more "hoops" to jump through as your income is volatile.
  • January 26 2014
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Hopefully a few lenders will respond, but my web site has some lender references and they do not charge to explain what they might be able to do.
  • January 26 2014
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Profile picture for bjtregoning
They will both require similar hoops as qualifying for a mortgage, whether FHA or conventional is very similar. You will have a lot less choices with FHA in terms of supply, especially if you are looking at condos as condo buildings have to be FHA approved. Let me know if you need any help. I'd be happy to discuss your options and give you my opinion.
  • January 25 2014
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