Post # 1
Hi all! I’m just wondering if any other business owners out there have had a bit of a tough time getting credit and mortgages. I’m at the end of my rope because even though my business pulls 80-100k in revenue, I can’t even get a credit card without collateral! I don’t get it. My credit score is excellent, I pay myself a decent salary, and my accounts are busting! What the heck bank?!
Ive been told it’s going to be really tough to get a mortgage being “self employed”, so does anyone have any advice on how to handle this?
Post # 2
If you have 2 years worth of tax returns showing a decent income, you have a low debt to income ratio, and you have paystubs which show that you pay yourself a consistent salary, you should be able to get a mortgage.
Maybe try going to local credit unions instead of the big national banks.
Post # 3
I thought as long as you had 3 years or so in income tax showing your personal salary that you would be okay to qualify. How many years of your salary in income tax do you have? But yes, I think it’s harder being self employed.
My husband is one, but we went the easy way and just used my income/credit to qualify for a mortgage and the mortgage actually went under my name only. Works for the time being as I actually was more comfortable buying something we could afford only on my salary as my husband is still growing his business. Not sure what we’ll do when it comes time that we will need a bigger house. By then I think he just wants to have a huge chunk of cash (which would be nice but I’m not banking on that quite yet lol).
I’d love to hear some advice from others who have done it.
Post # 4
It isn’t as bad as some people make it out to be as long as your tax forms reflect the fact you are doing well. The issue most people have is that they write off everything so their buisness shows little to no profit every year to avoid paying taxes, and they fail to pay themselves a Salary, the type of people who have company cars for their entire family (especially common for a sole proprietorship). If you are paying yourself a salary, and you can qualify for the mortgage based on that salary (when you calculate your front/back end DTI) then you should be all set, especially if you have had that salary for atleast the past 3 tax years.
When you are ready to apply for a mortgage, start with your primary bank, as they will be able to see you have sufficient cash reserves, and also approach a mortgage broker, specfically find one with experience working with the self employed as they will know what you need to do and will find a bank that will work with you if you need to provide alternative documentation.
Post # 5
This exactly! You can’t have it both ways. You can’t show no profit/salary on tax returns to avoid paying taxes, but then try to qualify for a mortgage based on income that you claim you didn’t pay yourself.
If you want to get a mortgage in the next few years, you need to pay yourself a consistent salary and claim that income on your tax returns.
Post # 6
you may want to take a closer look at your credit score/ report. It seems really strange that you can’t get a credit card. Qualifying for credit cards is usually based primarily on credit scores (eventhough they ask you to self report your income.) I was able to qualify for multiple cards back when I was a fulltime student with very minimal income from part time jobs.
Post # 7
AHAH! So essentially… I’ve been put in a little bit of a pickle then, by the person who does my taxes, because indeed, she had been encouraging me for the past years to expense everything I possibly could to the business! Car, home espenses, new computer and phone, energy, mileage, etc. While I’m sure she had the best of intentions, it really isn’t helping me now! I wonder if I switch from SP to LLC, and raise my salary, if I would still have similar issues….
Kes18: It’s a helpful reccommendation to just apply with my fi’s full-time salary, but I would 100% want/need to be on the mortgage. Just for my peace of mind, and considering that at this point 80% of our large downpayment is “my money”.
WestCoatsV: Yes, the credit card thing is SUPER weird, and I’ve actually been fighting with the bank because unfortunately, I think there is a bit of agism happening here (I’m 21). My credit score REALLY is fine, and the bank has acknowledged this, but still made me register a 1 year GIC in the amount of my monthly limit as collatoral. At first I laughed, because I could pay off a year’s worth of to-max credit card bills on the spot with my current account balances, but apparently they still need collatoral! It might actually be a huge scam, because they actually charged me $200 to register the GIC as collatoral, and I had to argue that charge off my account until I was blue in the face!
Overall, I’l just really disheartened you guys! I’m a successful business owner, I keep good account balances, I have a great chunk of change in my tax free and savings accounts for my house… and still the banks won’t take me seriously. Maybe I’ll give it another year or two, and take it easy on the company expenses, and see what the situation is like then!
Post # 8
FWIW, you should look up your state laws. While I am the only one on the mortgage with the bank (so they only run my credit, etc) by law (since we’re married) my husband is on the title and also by law I cannot sell the house without him (we both must sign off on it). So it really might not be as risky as you think. So at closing, my husband was required to be there and he signed all the same documents I did. They told me it was “1 to buy, 2 to sell” when you’re married. You would obivously need to be married at the time though, not sure how soon that is for you.
My husband has also been writing off a LOT of stuff! You can write off so much that it shows you basically have zero-little income. So pretty soon we are going to start doing more of a set salary and reporting that so that when we want to purchase a new home in 3 years or so it won’t be too hard hopefully!!
Post # 9
I am not skilled in owning your own business but with my husband we were required to show more documentation. It may help turning it into an LLC and showing you pay yourself a wage.
Post # 10
I was thinking the same thing they will pretty much give a credit card to anyone these days.
Post # 11
- Wedding: Hawksnest Cove Beach St John USVI
Agree with PP that even with one person in the mortgage you can usually both be on the title which gives you just as much ownership of the house.
Post # 12
It is also usually possible to put someone on the mortgage who is not contributing financially – a housewife for example. If you can afford the mortgage on your husband’s income, leave yours out of it. You can still be on the mortgage and on title.
I used to work for a bank and we were in farm country – the farmers all made really good money but their tax forms showed they made less than 20k per year because of all the deductions they claimed. We had special programs to help them but they were handled outside the regular bank branch through specialists in self-employed mortgages.
Post # 13
I was an SP when we got pre-approved and bought our house. Our bank didn’t give us any issues with my (sad excuse of an) income because my previous 3 years of income were all within about $5K of another… that might be because my husband is our higher earner, though?
I’ve opened multiple credit cards since I was 18, never had an issue getting approved when I was a broke college student with only $50 to my name.
ETA: Even if we wouldn’t have used my income to qualify for our mortgage, Texas is a community property state so I would have been on the deed and title, anyway.
Post # 14
I’ve been self employed my entire career and never had a problem like this. I’ve done self reporting mortgages when necessary, but with my high credit score and savings, I’ve always breezed through this process. Something is definitely off with what’s happening in your situation. When you say you have had 80-100k profit, is that reflected in your taxes? Is the business paying taxes on that profit or is that what you feel it made as it paid for your expenses?
Post # 15
just fyi (this may vary by state, I can only speak to my personal experience in CA) being on the mortgage offers zero protection. It just means you are responsible for the debt/repayment of the mortgage. You can be on the deed without being on the mortgage, and vice versa. If your fiancé can qualify for a mortgage on his own you may want to go that route and add yourself to the deed with a quit claim deed after purchase.
The credit card thing still seems off, because, typically it is not difficult to qualify for credit cards if your credit is even remotely decent. You may want to apply for other cards if you have just been attempting to get one through your bank. The standards for qualifying for a mortgage are significantly more stringent. For self employed or commission based earnings they typically want 2-3 years of steady income history. (I just went through this process.)
Also, I wouldn’t leap to the conclusion that it is ageism per se. Length of credit history is one of the factors that impacts your credit score. So, someone who is 45 and has a brief credit history because they “don’t believe in credit cards” would be impacted the same as a 21 year old who has a brief credit history.