All Forum Posts by: Kiana Rose

make the nanny job an LLC and pay yourself a salary. hows your credit?

@Kiana Rose - sounds like you are effectively self-employed. You're definitely supposed to pay taxes on your nanny income. If you are trying to buy an owner-occupied property (low down payment option) you will typically need 2 years history of income as self-employed. What size loan you can qualify for will depend on the income you show on your tax returns (unless you do a bank statement loan). DSCR is an option if you don't plan to live in the property, as your personal income doesn't factor in. You'll have to come up with 20-25% down as someone else already mentioned.

Forming an LLC won't separate your income from your personally; it simply shifts legal liability from yourself to the LLC if something happens on the property. You will still need your personal finances to be in good standing in order to qualify for a mortgage (unless you choose to use a DSCR as others have suggested). Qualifying for a mortgage will require two aspects of your financing to be in good order; your credit score combined with your debt to income ratio. Maximizing these two will help you qualify for the higher amounts of credit with lower interest rates. Increasing your credit score can be done by using credit wisely such as using a credit card and repaying it immediately or paying off exiting debt you have such as car and student loans. The only way to improve your debt to income ratio is to increase your revenue. Your nanny job can be declared since this is considered earned revenue so will qualify towards your debt to income ratio. This is income that does need to be declared on taxes regardless of whether it is paid under the table or not. This does mean that you will have to pay taxes on it but at the same time, it will also allow the revenue from this to increase your earned revenue which will benefit your debt to income ratio.

Since you mentioned you want to qualify for a multi-family, I would say your best strategy would be to house hack. This means you will need to live in one of the units while renting the remaining units. This will allow you to use financing designed for a primary home loan package such as an FHA loan. These financing packages allow you to purchase a home with low down payments (FHA loans require a 3.5% downpayment).

A couple of people have mentioned "DSCR" loans, or Debt Service Coverage Ratio loans. These are loans that are made to an entity (LLC, S-Corp, etc) that you own with you personally guarantying it. There are plusses and minuses to it as you'll have to put 20%-25% down plus closing costs and reserves, but your personal income or employment status won't really be an issue. We have an appraisal done on the property and we add a "Fannie Mae 1007", which is a form included in the appraisal where the appraiser assigns a market rent for the property. The Debt Service Coverage Ratio, or DSCR, = Monthly Market Rent/(Monthly Principal + Interest + Taxes + Insurance + HOA). That's it. Most lenders will approve it at a DSCR of 1.0 or higher. Experienced investors can go lower, but it's more expensive. The higher the number the better. It will allow an investor to scale, but the rate is going to be 1.25% - 2.5% above Fannie Mae 30 year fixed rates for a residence. With rates where they are, it is making cash flowing deals tight, so you'll want to watch for that. Multifamily (5+ units) won't qualify for a lot of these programs, but some will do them. I hope that helps you.