Question:
What are the heaviest weighted factors in obtaining a mortgage? I am considering quiting my full time job to start my own business as an Independent Computer Contractor. My pay would increase substantially from $35/hour to around $70/hour with contracts lasting 3 – 6 months. I would anticipate being billable at least 80 – 90% of the time throughout the year. I currently have owned a house for the last 2 years and am thinking about selling and buying another with my wife to be in the next 6 months to 1 year. Her income is roughly half of why my current income is. Is it a pretty much guarateee that I will not be able to get a mortgage on a new house if I am a sole proprietor for less then a year? Spencer
Response:
> What are the heaviest weighted factors in obtaining a mortgage? I am > considering quiting my full time job to start my own business as an > Independent Computer Contractor. My pay would increase substantially > from $35/hour to around $70/hour with contracts lasting 3 – 6 months. > I would anticipate being billable at least 80 – 90% of the time > throughout the year. I currently have owned a house for the last 2 > years and am thinking about selling and buying another with my wife to > be in the next 6 months to 1 year. Her income is roughly half of why > my current income is. Is it a pretty much guarateee that I will not > be able to get a mortgage on a new house if I am a sole proprietor for > less then a year? > Spencer
My DH is a computer contractor as well. Our situation was a lot like yours: his pay would increase significantly, he rarely had more than 2 weeks per year that were non-billable time, his contracts were more like 12-18 months, and I was an at home mom. When we were ready to buy our house, we consulted with a number of mortgage lenders, our CPA and our lawyer, and everyone advised us to buy the house FIRST, then do the paperwork for the business because everything would be easier in terms of paperwork. If you choose to do the business first, you may have to settle for a no-doc or low-doc loan and resulting higher rates. We qualified for our loan, closed on our house and the next week set up our LLC and have had no problems. That was 4 years ago. We just refinanced, and because our business has 4 years of history, we had no problems with the refi.
Response:
>What are the heaviest weighted factors in obtaining a mortgage? I am >considering quiting my full time job to start my own business as an >Independent Computer Contractor. My pay would increase substantially >from $35/hour to around $70/hour with contracts lasting 3 – 6 months. >I would anticipate being billable at least 80 – 90% of the time >throughout the year. I currently have owned a house for the last 2 >years and am thinking about selling and buying another with my wife to >be in the next 6 months to 1 year. Her income is roughly half of why >my current income is. Is it a pretty much guarateee that I will not >be able to get a mortgage on a new house if I am a sole proprietor for >less then a year? >Spencer
Not necessarily, but it could end up being a little more expensive. Most lenders will look at the amount of your downpayment first. If you’re able to put down 20% (or more), they get real forgiving. Add into that the number of years of experience you have in your industry, like at least 3 or more, and you’ll have some wiggle room. Being extremely conservative in the amount of your new venture’s actual increase of income is also a must. Could you afford this new home on your present income? If not, you may just want to wait until you have more saved for the down payment. So what if it takes a couple of years, that’s much better than getting in over your head. Especially with a new bride ; ) Also, it might be worth considering starting your new business while retaining your present job. Not fun, by any means, but nobody promised life would be. I worked at building my business for 6 years while retaining full time employment, and I’m now very, very glad I did. Good luck. — Tic
Response:
> When we were ready to buy our house, we consulted > with a number of mortgage lenders, our CPA and our lawyer, and everyone > advised us to buy the house FIRST, then do the paperwork for the business > because everything would be easier in terms of paperwork. If you choose to > do the business first, you may have to settle for a no-doc or low-doc loan > and resulting higher rates.
Dittos. I ran into exactly the same thing. Since I was already in the consulting business, my choices were a low-doc or no-doc, or try for a regular mortgage based on 60% of my old salary (a number that the bank pulled out of thin air). I did qualify, but it was so close that they had to carry 2 decimal places in their calculations. -john- — Newave Communications http://www.johnweeks.com
Response:
> What are the heaviest weighted factors in obtaining a mortgage? I am > considering quiting my full time job to start my own business as an > Independent Computer Contractor.
A second point is that being self employed will put you in high risk for mortgage insurance. You want to do everything you can to put down 20% to avoid that problem. In my case, the bank claimed they could only find one high risk company to insure my loan, and they wanted $1000 up front plus $100 a month, and this was for a $150K loan with 10% down. This wasn’t sprung on me until the morning of closing, so it was too late for me to do anything about it, and if I didn’t close, I would have lost my deposit with the builder. It turned out to be an expensive lesson for a first time buyer. And to think that I have never been late a day in my life on any payments. -john- — Newave Communications http://www.johnweeks.com
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