When you don't qualify for a mortgage

Question

I am financially stable, but I went freelance about two years ago. The first 1.5 years I didn't make much money and took out from my savings to pay the mortgage on my primary residence. I've started making a good income doing freelance this year (6 mo worth) and I've been learning about REI for cash flow and was hoping to start this year. However, I live in an expensive city (Seattle) and although I can afford a downpayment on an investment property, I don't seem to qualify for a mortgage if I do bc banks take the average income of the last 24 months to determine ability to pay. Given I've only been making money for the last 6 months freelance, this isn't working in my favor. So, I'm in a weird situation where I can't get a mortgage and I don't qualify for things like FHA (at least, as far as I understand FHAs).

What are my options? It seems like hard money doesn't work as they are high interest and short term, and what I need is exactly the opposite. I DON'T have enough money buy a house here cash-in-full, so that's not an option either. Any thoughts? I feel like I'm stuck in this weird in-between so any ideas would be helpful.

Thanks!

What are my options? It seems like hard money doesn't work as they are high interest and short term, and what I need is exactly the opposite. I DON'T have enough money buy a house here cash-in-full, so that's not an option either. Any thoughts? I feel like I'm stuck in this weird in-between so any ideas would be helpful.

Thanks!

Tarik Turner · Answer

If you are seeking an investment property, Apply with a portfolio lender most do not calculate DTI and offer some form of stated income program

Tracy Kelly · Answer

A hard money/private loan could still work for you. The interest rates are higher. But you could keep the hard money loan just long enough to 1) continue making a good amount at your free lance position, and 2) have a history of making the investment property profitable.

When you have those two things, you can probably refi with a conventional lender with standard interest rates.

I do private lending and many of my loans pay off early when borrowers can get conventional financing.

Adrian Chu · Answer

Most portfolio lenders still require 24 months worth of self employment.  The most common product for this scenario is a bank statement loan, where instead of using your net income to qualify, they will use your gross income.

Elaine C. · Answer

Hi everyone! Thanks for the insights. Looks like finding a partner or a portfolio lender is the way to move forward (or delay for a bit while my income steadies). Now to do research on portfolio lenders... Thanks!

Stephanie P. · Answer

@Elaine C.

If it's for owner occupied, just go with a bank statement loan from a portfolio lender.  If you have good credit, you should be able to get up to 90% loan to value.

Seth Ferguson · Answer

Like @Joseph Holliway said, bringing on a partner to qualify and sign for the debt will be the best route.

Joseph H. · Answer

You can look for a partner, or it depends what you want you can do Private Money Lenders, or a commercial loan. Those will look at other factors outside of your income. Check with some of your local lenders and see what they offer.

When you don't qualify for a mortgage

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