Financing for Newly Self-Employed

[Cameron Rouse]

I'm looking to purchase rental properties but have been self-employed for the past year and have been told by 1 lender than there is a 2 year minimum. I'm a RE Appraiser and have been this for 5 years. 

I'm curious how others get past this hurdle considering many RE investors don't have traditional W2 jobs.

[Torrell Palmason]

As @Charles Carillo stated you can get approved for self-employed at two years with tax returns. The other option he mentioned is also known as Non-QM. Below I pulled my answer for another user looking into Non-QM.

"A Bank statement loan is used primarily for a self-employed and will require 12-24 months of business or personal bank statements. If it is personal bank statements then all deposits will be counted toward income whereas business bank statements will take only count 50% of deposits towards income. The disadvantages of this loan type is it will be a higher rate than a conventional, Minimum credit score allowed is a 660, 6 months of reserves, and a 80% max Loan-to-Value. These terms are based on what my company does and will vary from lender to lender.

On a DSCR loan, rents of subject property must be 100%-115% of the mortgage payment. The max LTV to value will be 85% and will require 6-12 months of reserves. The minimum Credit score is 660. Since this is a Non-QM it will have higher rates than a Conventional. There will be variations of the terms above based on program and lender however these are the terms set by the Non-QM DSCR 1-4 unit that my company uses."

These options will allow you to keep building your inventory while you wait for the two year requirement. Conventional is also possible, however it will be at the Underwriters discretion based on if they see you in the same professional field counting your time as an appraiser towards you REI time. This will vary Underwriter to underwriter.

See Fannie Mae Guideline regarding length of self-employment below.

"Fannie Mae generally requires lenders to obtain a two-year history of the borrower’s prior earnings as a means of demonstrating the likelihood that the income will continue to be received.

However, a person who has a shorter history of self-employment — 12 to 24 months — may be considered, as long as the borrower’s most recent signed federal income tax returns reflect the receipt of such income as the same (or greater) level in a field that provides the same products or services as the current business or in an occupation in which he or she had similar responsibilities to those undertaken in connection with the current business. In such cases, the lender must give careful consideration to the nature of the borrower’s level of experience, and the amount of debt the business has acquired."

Best of Luck!