I’ve been in this real estate game for a minute and I want to preach about something real quick. I’ve had clients experience this, I’m currently in the process of dealing with it, and finding any useful resource online regarding this has been less than stagnant. I’m talking about being a first time home buyer and trying to get approved for a loan if your self employed. On the surface it looks like business is boomin’ so getting a new place should be a piece of cake. Well, unfortunately, it’s quite the contrary. Unless you’re plowing in the cash and you can buy your new house by passing along a silver briefcase cuffed to your wrist, then you’re about to get a sucker punch to the gut. Take it from me, getting a loan while you’re self employed is one of the most painful and excruciating experiences of your life.
Case study: The sucker that’d be me!
To keep the innocents sequestered I’ll use myself as the real life example. I am a sole proprietor. I’m really trying to own a new place before the end of the year. Unfortunately, when you’re self employed, the loops you have to jump through are ridiculous. Without verifiable income, lenders put you through the gauntlet to get approved for a loan. From requiring you to contact clients and request for letters verifying how much money you make to proof that you’ve been self employed for more than 2 years, it’s tough. Not to mention, they don’t actually look at all that money you saved up, they only look at a portion of it. So that means if you saved $100,000 for a down, the lenders will only consider 40-60% because the rest is saved for in case shit happens. Totally sucks!
After the chaos of jumping through flaming hoops and talking with several loan officers, I have finally come to a conclusion. At the end of the day the infamous W-2 is your golden ticket to Willy Wonka’s factory. Having that saves you all the heartache in the world. The problem is, when you’re self employed you get 1099’d for everything. We’ll here’s the solution. Open up an LLC! Those 3 blessed letters are a olive branch from heaven.
By simply opening up an Limited Liability Corporation and paying yourself regularly, you can tax yourself as an employee and get that W-2! Then when it comes to the banks trying to verify your income, you can say that you work for a “company” and you make THIS much. No need to send letters or worry about savings. Verifiable income solution solved!
I wish someone told me this sooner. I’m still hopeful that I’ll get approved but if I knew it was this easy, I would have opened up an LLC a long time ago. It really bums me out that no one else is really writing about this. I’d love to hear more feedback if it’s out there! Drop a comment below or hit me on the DM!