Self-employed are frozen out of mortgages | Hacker News Reader

Self-employed are frozen out of mortgages

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16 pointsjon_dahl25 comments

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.

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.

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.

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.

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.

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?

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

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.

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

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.

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.

Will p2p lending work for mortgages? Do they have p2p loans configured towards mortgages? It would have to be pretty different to the normal unsecured loans

Did you follow the link? It starts/ends with a story about a guy who bought a home with a p2p credit.

No, he didn't. "Brandon Frazier, 32, a public relations consultant, was aware of that when he borrowed $18,000 to cover expenses from buying a house in Southeast near RFK Stadium last year." The photo caption is misleading.

So what did he do with the 18k? Buy ice cream? You probably mean that he didn't finance the whole house with this money but this does not mean that you can't do it.

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?

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.

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.

Some people did get caught in the cross-fire, but that's because they bought into variable rate mortgages, which are just stupid.

I don't have a variable rate on a credit card even though I never go into debt, so why would I want it on a $200,000 up-front debt?

While it's correct that a mortage note holder (bank, pension fund, etc) going bankrupt doesn't cause the folks on the other end of said note to lose their homes, renters can be forced out when the home owner defaults.

"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

Let me try to respond more appropriately:

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

Please read this for some basic understanding my dear non-"idiotic" friend:

"The root cause for the current crisis seems to be the excessive use of leverage.

To take an example, a company with a net worth of US$ 25 billion borrowed 26 times its net worth and creates leveraged funds of US$ 650 billion to invest or lend them. When a small portion of the company's investments turns bad, as is the norm for the industry, the company's capital is under threat. To put things in perspective a 3.8 percent misjudgment in their books was enough to wipe out their shareholders' capital of $ US 25 billion."

http://economictimes.indiatimes.com/Features/Financial-Times...

Your attempt to look knowledgeable would be much more effective if your conversation had any sort of coherence to it. Does that link address how a bank going out of business forces you to lose your home if you have a mortgage with that bank? (Presumably not, since it's not true.) You may have forgotten the beginning here, but it looks like the rest of us haven't.

You don't lose your home if the bank goes out of business. Mortgage holdings are sold off as assets as part of the bankruptcy settlement. The ownership of the underlying mortgage changes, not the ownership of the home.

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