Financing in 81147>Question Details

smm, Home Buyer in Pagosa Springs, CO

Do I need to wait 2 years after starting my business to get a loan for a home, say $130,000?

Asked by smm, Pagosa Springs, CO Thu Jun 13, 2013

We have good credit and 20 years experience in the field of our new business, and 11 years with last employer.. And down payment is possible.

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Most lenders sell their loans to the secondary market (Fannie Mae or Freddie Mac). To do that, the loan needs to meet very specific standards. One of those standards requires the lender to gather all the data they ask you for - W-2's, account statements, tax returns, etc... They have so much less flexibility than in years before that skimping on the guideline for employment history will be tough for them. The lenders that could help you are those that 'hold their own paper' meaning they don't sell their loans. Instead, they keep them in their 'portfolio'. This means its their money they are lending so they get to make the rules. Of course, they also have strict rules but its more possible to get consideration for your history in the industry. So, talk to any lender and explain your situation. If they can't help you, ask them to refer you to a lender that can. Good luck!
1 vote Thank Flag Link Fri Jun 14, 2013
Brian is correct and in addition to what he said, the reasoning is that until you have two years of tax returns, you can't really prove how profitable your business is. You may pay yourself a salary and defer some capital expenditures the first year for instance and show an unusually high income (which by itself wouldn't fairly represent your earning power) and then next year take the hit which of course would lower your income average. Wallstreet investors want to create products/guidelines for lenders to sell/consumers to buy but at the same time, they're painfully aware due to the continued bleeding from the last decade of loose guidelines they need to find appropriate ways to mitigate risk without stalling the machine, this is one of those ways.

On a parting note, anyone who owns 25% or more of a business and is using mainstream financing will be required to provide tax returns as they're considered self employed (portfolio lending can do whatever they want).

I've seen some very rare cases that Desktop Underwriter will only ask for one year of tax returns. While it may be possible this could work, many lenders will have an overlay to require two years of returns even if DU asks for only one. It'd be a good idea to go into this with this expectation and if you get lucky, great, if not, you wait a year. I know as of when I write this, my company can do this but none of the companies I've worked for in the past five years can do this so it appears to be uncommon at best.
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0 votes Thank Flag Link Fri Jun 14, 2013
If you are working in the same line/ field you might be OK. Best bet would be to talk to a local bank here. As far as nation wide lenders most all will want 2 years of tax returns since you became self employed. You also might be O.K. depending on how you pay yourself. Sorry that I can't give a clear answer, the quick would be in most cases you will have to wait. I was in lending for years and can help with more detailed info on your situation, that said I would strongly recommend talking to 1st South West Bank over by Terry's Ace. Good Luck :-)
0 votes Thank Flag Link Fri Jun 14, 2013
I'd be happy to refer you to a few of my preferred lenders. You really need to sit down with someone who can review all of your financial info. But from what I know, yes, self employed people really need two years of tax returns. But again, you really need to talk to a lender who can discuss your specific situation.

Good luck!

Sally Grenier
0 votes Thank Flag Link Thu Jun 13, 2013
You may talk to a mortgage banker.
0 votes Thank Flag Link Thu Jun 13, 2013
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