No Interest in the Self Employed

[Zachary C.]

Hello,

So I'm brand new to REI and in fact cannot truly put the "I" on the end of that acronym yet. So far I have just been researching and trying to take in as much information as possible. I realize that you study all you want but at some point have to take the test and most likely will never feel ready for the first one, so I decided to get my feet wet. The plan that would best fit my conservative nature for my first deal is something along these lines... I would find a property that between the purchase price and the initial cost to get it in rental ready shape would be something that I could pay more than 50% of with my already liquid cash leaving some in the bank for any reasonable personal issues that might arise and not having to touch anything in my not so liquid investments. The less than 50% of debt would also have to be something that I would be able to pay off very fast, i.e. if I thought it might take close to a year I wouldn't be interested (note: this debt repayment is calculate by my work checks and is completely independent of the investments performance or lack there of). So when I saw an opportunity and I knew that I would need to secure some more capital I called the mortgage people. There was almost no conversation, it went very quickly to "Oh your self employed. Well we, and all other mortgage people, will not be interested in talking to you for 2 years. But, while you wait the 2 years here are some things you can do to build credit...." I found this almost comical considering that I can pay my debts better than others that they would probably talk to and approve. Is switching from a w-2 to a 1099 position really that big of a deal that regardless of how much money I have or make I can't even be talked to or considered. If so, what options are people in my position pursuing? For the record my credit score is excellent.

Thanks,

Zac 

[Mindy Jensen]

Lending institutions qualify you for loans based on Fannie Mae and Freddie Mac regulations. Once they qualify you for the loan, it can then be sold if they follow the guidelines. Most lenders can't afford to keep lending large sums like mortgages, so they sell them in order to be able to generate more loans.

A local bank may offer portfolio loans, which means the lender keeps the loan in their own investment portfolio, rather than selling it. They may be willing to waive FM guidelines, or might stick directly to them, but they have a lot more leniency in their qualifications. Have a larger downpayment will make you a more attractive bet. 

I'm in the same boat as you are. Start a conversation with a local credit union or small bank in your area and see if they offer these loans. Then begin a relationship with them.