Can IM'ers get a mortgage?

23 replies
I'm trying to get my first mortgage right now. I've been in business for 2 years now. This year I am making significantly more than I did last year, or any other year in my life for that matter. I just talked to the mortgage broker and they said they weren't sure if my income received from Paypal could be used because they weren't sure if the underwriter could verify it. I provided them with my monthly reports generated from paypal as proof of income. Has anyone had any luck with this? It seems that the reports would be just as good as another guy's paycheck stubs. But can an underwriter verify the income with Paypal somehow?
#imers #mortgage
  • Profile picture of the author CarolinaInvestor
    You have the same problem that any person in business for themselves has. I have been in business for 13+ years and I still get a groan on the other end of the line when I have to get a loan. Your last two years tax returns should be enough to satisy their requirements. My paypal is a business account, but I would expect that some sort of 1099 would be in effect on the money earned. Your tax returns should suffice. Two years is still pretty young for a business so you may have a little more difficulty. I just refinaced my home and the only problem I had was the lower than expected apraisal.

    This is always a problem for small business. Hopefully you are incorporated. I would suggest working out a program where you take 50% of your income as regular salary (ie, witholdings, ss, medicare, all the fun stuff). The other 50% (maybe less) as distributions. This makes the IRS happy.
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    • Profile picture of the author MarkAse
      Lenders, like the IRS, don't care how you make your money.

      If you have tax returns that will be enough for some lenders. Better yet if you issue yourself a monthly paycheck.

      If the national bank route doesn't work, a local credit union is typically more understanding of someone having less paperwork.

      Best of luck!
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    • Profile picture of the author RyanLeisure
      Yeah, the problem is my last 2 years tax forms are in no way a representation of what I make now. 2 years ago I was in college and made $6000, hahaha. Last year was better, but I've more than doubled up my income from last year. So yeah, the mortgage broker is having a hard enough time just figuring out where my money is coming from I think
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  • Profile picture of the author RyanLeisure
    I'm talking with a local mortgage broker right now, but they work with the big banks I think. I might take a jog over to the credit union and talk to them.
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  • Profile picture of the author GuerrillaIM
    You can but you will usually need to provide proof of earnings. This will be bank statements and tax returns usually.

    I know a guy who has a business faking employments for people who want to get a mortgage. He will give you fake wage slips etc.. but I have no idea on the legalities of it.
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    • Profile picture of the author kf
      Did you really say that? [:0]

      Originally Posted by GuerrillaIM View Post

      I know a guy who has a business faking employments for people who want to get a mortgage. He will give you fake wage slips etc.. but I have no idea on the legalities of it.
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    • Profile picture of the author timpears
      Originally Posted by GuerrillaIM View Post

      I know a guy who has a business faking employments for people who want to get a mortgage. He will give you fake wage slips etc.. but I have no idea on the legalities of it.
      I am not a lawyer, so don't take this as legal advice, but last time I checked, that would be mortgage fraud. Which I believe would be a felony if done in the USA. But it is only illegal if you get caught, of course.

      Any good mortgage broker should be able to shop the loan with tax returns and bank statements. As long as you have been operating legally and not trying to hide your income, you should be able to get it done if your income will support the mortgage. You will probably not get the best rate, but that is part of the problem with self employed people.

      It is best to treat yourself as an employee and issue yourself a paycheck and pay the taxes and take what ever is left as a distribution quarterly or whenever. So many self employed people try to hide some of the income, and this is the time that this behavior bites them in the butt. But that is the way it goes. Hopefully you have the bank statements to prove your income and you should be fine if your broker knows what they are doing.
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      • Profile picture of the author mrmatt
        I'll chime in here as I am in the mortgage business.

        You will need to be in business for a minimum of 2 years. If you don't have a business license or a corp, LLC etc. you will need a letter from your CPA that states you have been in business for at least two years. You will need 2 years tax returns. If not you will need a year to date profit and loss from your CPA.

        They will average your income for the last to years. So, if you only made $6,000 (net after write offs) your first year and $24,000 (net after write offs) your second. You only make $15,000 a year average, or $1250 a month.

        Telling your broker what you made over the phone is not much help. Especially with the self employed who utilize the tax codes to their advantage. In other words, writing off the majority of your income. When I speak with the self employed over the phone I tell them that everything sounds good (as long as they say they have good credit and been in business for min of 2 years) but that I must see the tax returns to see if they qualify and for what amount.

        The other thing to keep in mind is this. If you do have a corporation and it pays you a salary, but the corporation takes a loss. That loss eats up your salary.

        There are certain things that you can add back in that you write off. Mainly being depreciation since it is really not a cost. It is a phantom cost.

        The days of the stated income loan are gone. You have to prove you income now. And don't even think about getting fake checks, W-2'sor tax returns. All of that is verified by the banks/lenders. If you get caught that is prison time and huge penalties.

        If you have a huge down payment. 40% or more. A local bank or credit union may still give you a loan as they would portfolio the loan versus selling it on the secondary market. 20% down is not going to cut it. If not, with that kind of down you could get private money. Private money is typically local folks that loan their personal money out on real estate. It is ugly. 5+ points and 12% rates or higher.

        But as long as you have a 620 credit score and you can prove enough income to qualify for a loan. They are still very doable. USDA is zero down but you must buy in a rural area. FHA is 3.5% down. And currently while the program still exists. You can buy FAnnie Mae foreclosed homes with 3% down and no mortgage insurance.

        As far as rates are concerned. With the FHA and USDA, as long as you have at least a 660 credit score or higher. You will get the same interest rate as someone who had a 780 score for these loans. FHA are typically priced right in there with a conventional loan. Maybe only an .125% higher. USDA is typically about .5% higher.....but hey it's zero down. In other words don't fall for some BS line about "well your self employed so you will be paying a higher rate" from your broker.

        Don't forget that when you make an offer you can ask the seller to pay all of your closing costs up to 6% of the purchase price with most loans. If it is a foreclosure from Fannie or Freddie they will only pay 3.5%.

        Good Luck and congrats on taking that first step to buying a home.

        Matt
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        • Profile picture of the author RyanLeisure
          Matt, Thanks a lot for taking the time to write all that. That information is VERY helpful. Like I said, I'm not in a huge hurry to buy a house, just figured I would if I could and take advantage of the tax credit. But it sounds like I better just hold off, pile up cash, and continue to make more and more money each month. Thanks again for the help
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  • Profile picture of the author Affiliace.com
    While the loan market has tightened up quite a bit, tax records are often used for self employed/ home business owners to prove income. Those who under-report their income to evade taxes may find themselves unable to get a loan.
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  • Profile picture of the author RyanLeisure
    haha, that sounds a little shady with the fake paychecks. I gave them full paypal statements and bank statements showing deposits for the past 4 months. I figure that should do the job. She's talking to the underwriter and calling me back on wednesday
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  • Profile picture of the author Rich Struck
    I was able to get a mortgage no problem at all but this was a few years ago before the current meltdown. All I needed was tax returns I think. We had a fat down payment so that helped too - now that I think about it that is all they really seemed to care about.
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  • Profile picture of the author gg282
    You'll need to find a broker who has access to many lenders that would consider this type of deal. FHA, VA USDA and conforming loans are really your only options for getting a loan. I'm pretty sure they will want 2 years tax returns and bank statements showing deposits of your income. The underwriter will be looking for other reason to beat up this loan, so that it will be sellable to investors. Be prepared to supply lots of paperwork and stay in touch with your loan officer as much as possible.

    Don't let them pull credit until a mortgage broker you find has lenders who can do your deal.
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  • Profile picture of the author RyanLeisure
    Yeah I know it's tightened a bit. But when I first talked to the broker, she said it wouldn't be a problem at all when I told her my income. Now she seems to be second guessing it, which is irritating
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    • Profile picture of the author bgmacaw
      Get a 20% down payment and you'll be surprised at how well this greases the wheels unless you've got something terrible in your immediate past. When you're able to put $50k-100k or more of your own money into a property it inspires a greater degree of trust by lenders than you just putting $5k or so into it.

      You may want to establish a business bank account at a local bank and use it as your primary money conduit rather than PayPal. This lowers your risk and will make potential lenders more comfortable, especially if you have $15K-20K in your checking account at their bank.
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  • Profile picture of the author RyanLeisure
    She pulled my credit right away. So she saw that, saw my debt, and my income and said she has several FHA lenders and nearly guaranteed she could do the deal. Sounds like the deal will still go through, but it might be based off my last year's income rather than my current amount which is a lot higher
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  • Profile picture of the author RentItNow
    Going private is usually the only way to get mortgage for self-employeed. You can also make a seller take a second back or assign the mortgage to you. Co-signer option as well. I use private. Ask your friends if they know anyone that gives mtges. Usually can only finance 75% tho.
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    • Profile picture of the author Kay King
      Yeah, the problem is my last 2 years tax forms are in no way a representation of what I make now.
      I've worked extensively with mortgage brokers and she isn't second guessing you. You told her how much you earn - so she gave an opinion based on that being verifiable (tax forms) income. The broker has to put together a complex package to send to the underwriter - and everything has to be verified in detail. The underwriter looks for consistent income, work, etc over a period of at least two years and underwriting guidelines are very tight right now.

      Self employed people are often surprised when they realize they can't explain their way into mortgage approval. The numbers work - or they don't. They can be verified - or they can't. That how underwriters work - and they are using tough guidelines these days.

      If you file quarterly (may be required if you are earning full income from self employment), recent income would be verifiable and increases in income showing on quarterly tax filings might help you qualify quicker.

      Money talks. If you have a hefty (30-50%) down payment, you can probably get a decent loan somewhere as it's lower risk. If you are looking for low down payment, good interest, etc - it will be much harder as a self employed person.

      Good luck. Provide every bit of info the broker asks for - and trust her judgment. She wants to get you a loan (that's how she earns money) but she can only do so much.

      There might be other options - a co-signer, a rental contract with option to buy, seller financed property, etc. A good real estate agent could tell you if those are possible in your area.

      kay
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  • Profile picture of the author RyanLeisure
    What do you mean by going private?
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  • Profile picture of the author Dennis Murphy
    I know a guy who has a business faking employments for people who want to get a mortgage. He will give you fake wage slips etc.. but I have no idea on the legalities of it.
    Having worked in the mortgage industry, this is HIGHLY illegal, and can be a Federal crime. He is not only damaging the industry further through theft, he's also helping people destroy their lives by allowing them to get into mortgages they can't afford or don't qualify for.

    Dennis
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  • Profile picture of the author RyanLeisure
    Yeah I have a business bank account now that I funnel the money through. I've only been doing that for a month or so though. I won't have 20% down. This is my first house, and I'm only 24 years old. We might end up just waiting if this doesn't go through. We're not in a huge hurry or anything, just trying to grab that $8000 tax credit from the government if we can.
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  • Profile picture of the author RyanLeisure
    Thanks Kay, that makes sense.
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