

Self-employed are frozen out of mortgages - jon_dahl
http://online.wsj.com/article/SB122818315556971151.html

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jon_dahl
I'm currently having this experience. Trying to buy a house, but because my
income has come from a variety of sources over the years - a small consulting
company, a startup, and my own independent consulting - it's going to be tough
for me to qualify. Specifically, my income source changed from 2008 to 2009,
and they won't accept the 2009 income at all, because the entity is new. I've
had steady income - and provided steady income for employees and contractors -
but that's not enough.

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DougWebb
Anyone who's self-employed should be professional about it, set up an LLC or
corporation of some sort, and pay themselves a salary out of the business' net
earnings. You pay taxes on the salary, but the business gets a deduction for
it, so that's no excuse not to do it this way. And complaining that you can't
claim the income as a deductible business expense and available to spend on a
mortgage at the same time is just whining: it's a cost of doing business or
it's profit in your pocket; you can't have it both ways.

If this is too complex, and you want the simplicity of being a self-
proprietor, then accept the consequences, including not having documented
proof of steady income.

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mattculbreth
Probably good enough advice, but the salary and tax part isn't really the key
issue. It's fine to be a single member LLC and do the estimated quarterly
taxes thing. As long as all of your deductions are reasonable your taxable
income should be just about what you actually have. If you have multiple years
of this kind of income the bank becomes agreeable to it.

It also helps to have a high income if you're going to do this, but then again
that's why you do the LLC thing in the first place.

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tptacek
Yup. Had this problem in '05. Not even going to talk about what we did to
solve it --- extremely skeevey. I doubt I could have bought at all under
current conditions.

Buying is overrated anyhow, though.

~~~
petercooper
One way I know that people have used was to set up a corporation, put savings
into the corp then hire themselves and pay whatever salary they required for a
few months. Three payslips later (a common requirement until recently, at
least) they could get a mortgage. To do this "legally" requires you paying the
taxes on that "income" but that could be worth it.

In my case I got a mortgage in 2007 (one month before the market peaked, woo!)
through a mortgage broker who convinced the mortgage company to be happy with
3 years of self employment tax returns, and it wasn't a self certified
mortgage or anything crazy.

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mikeryan
I'm actually in this situation now. I run a small consultancy organized as a
single member LLC.

Does anyone know if filing taxes as an S-corp and giving myself a salary gets
around this at all?

~~~
peoplerock
IANAL, but I'd wager that proof of taxes withheld would be the key issues (pay
check stubs, etc.)

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pmichaud
This is part of the reason I'm buying in cash right now. It used to be that it
was insane to buy in cash because mortgage rates were way lower than average
market gain. Now that's not so much the case.

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joevandyk
I've been self-employed for 2.5 years. I have an LLC. I got a mortgage last
month.

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hristov
Oh let us all cry for those poor people that cheat on their taxes. It is very
simple, the bank assumes that your income is what you put as your income on
your tax return. If you cheated on your taxes and said you have no income then
the bank will assume you have no income.

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onreact-com
Try peer to peer lending instead:

<http://news.ycombinator.com/item?id=841484>

Who trusts banks these days anyways? When they go bankrupt you lose your home.

~~~
tptacek
I'm confused. The bank that held my mortgage went bankrupt. Strangely enough,
I still seem to have my house. Seriously, what are you talking about?

~~~
onreact-com
Sorry, I don't want to explain the financial crisis to you but in short it was
something like this: The financial system broke down, banks either went
bankrupt or had to be rescued by tax payer money.

As a result of the financial crisis many people lost their homes. Maybe that
was too complex for you to understand the connection and you still trust your
bank. That's OK for you, it's your choice. Still many people don't trust banks
anymore with good reason.

~~~
ptomato
How idiotic can you be? "As a result of the financial crisis many people lost
their homes." People lost their homes because they couldn't pay the mortgage.
They couldn't pay the mortgage because they didn't have the money to pay the
mortgage. The banks went bankrupt because they gave mortgages to too many
people that couldn't pay them.

~~~
onreact-com
"How idiotic can you be?"

"When disagreeing, please reply to the argument instead of calling names. E.g.
"That is an idiotic thing to say; 1 + 1 is 2, not 3" can be shortened to "1 +
1 is 2, not 3.""

<http://ycombinator.com/newsguidelines.html>

~~~
tptacek
Let me try to respond more appropriately:

"Nothing you said about mortgages appears to be true".

