Self Employment and Mortgage qualification

[applegreen]

Hi, I am an IT professional working for an government agency for a little more than a year, before that I worked for this same organization on contract base for about year and half. I have one rental property plus my own home. My plan is to keep purchasing , the problem is that I don't have enough downpayment to support my plan. Join-Venture and refinance are not options for me now, I has been thinking about going back to IT consulting and am able to land an offer of two year contract with a decent rate, I am ready to make the move but my concern is once I become self employed again, Will it be more difficult for me to qualify mortgage, btw, I will buy my next property under company's nam not my own name. Is there anything I can do now to help the qualification before I give the company notice. much appreciated, thanks

 

[invst4profit]

You may want to rethink setting up a company to purchase properties under. Check with your bank but my understanding is they are less likely/more stringent in providing mortgages to companies. They may have the perception you are attempting to distance yourself from the financial liability of the mortgage.



As a contractor a mortgage will be difficult to obtain and as such a larger down payment will possibly be required. If partners are not a option you will need to save cash. Possibly refinance a existing property or your home to pull out equity. Debt to income ratio will be a issue.

We have all hit that wall at one time or another.

 

[JBagorio]

Likewise I was an IT consultant for a while as well. I took on fulltime employment for income stability to support my RE investing passion. The bank like to see a steady income stream. Before buying more rental prop I would suggest making sure that your current rental prop is performing just fine cash flow wise. Make improvements on both of your units that will help them appreciate in value. No rush! Once you are ready there are many ways to get funds. Be it through your savings, earned equity or other people $$$ via JV (this will require good track record).

At this stage of the game (unless you have the proper structure and tons of funds in a holding corp) keep it all under you personal side. Talk to an accountant more on this...

Good luck!

 

[Thomas Beyer]

related posts and more links here:

 

[Alvaro Sanchez]

I am self-employed (IT Consultant) so you will need 2 years of proof as independent so yes it's more difficult but not impossible. JV is the way to go,,, I am not sure why you are ruling that out.



Keep in mind that banks loves government employees... so you might want to consider doing your consulting part-time while you clarify your goals.

 

[applegreen]

Thanks everyone for the input, a lot of good points, I really appreciate



My two properties were recnetly purchased, one was from 2 years ago and the rental was purchased just 1 year ago, even though the appreciations on both have been excellent , however the housing price in toronto is already very expensive, almost the same price as some of the multis in Hamilton. therefore I don't have enough room from equity for next downpayment. but the consulting business can provide me enough cash for at least one purchase per year, as for JV, I guess it has a lot to do my personalities, for me the consulting business is more a feasible approach than JV, just need to fully understand severity of the impacts for mortage qualification before making the move, really good to know it is not impossible



I recently had a consultantion with George dube, buying under company name was suggested by George, I understand it may not be the case for someone, however by talking to George,I do see a lot of benifits from the strategy he sets up for us, especially becasue we are long term buy and hold type of investor.just the cost of setting it up and annual filing is kinda holding me from moving forward.

Yvonne

 

[RobMacdonald]

There's no question there are a number of benefits for incorporating to purchase rental properties, every lawyer and accountant can provide an extensive list.



But there isn't anything to put into your corporation if you can't get financing. And that window shrinks tremendously when buy under a corporation.



Consider buying under your personal name and then making a trust declaration to your corporation. I'm not a lawyer, but have several clients that have worked through this process and have been satisfied.

 

[applegreen]

Rob, thanks for the reply, both the post and my email, very useful and insight informations, I definitely will take your advice seriously, Yvonne

 

[Aneta]

Applying for mortgage via a corporation does eliminate a number of lenders. Even if the lender accepts, you will most likely have to personally guarantee. So, you must have other reasons why incorporating is important to you.



Yes, self-employed applicant is a harder deal, but lenders do accept. You may be looking at a marginally higher interest rate. If you have existing portfolio, cashflow is important, as they will shave-off your rental income as per their specific debt ratio calculations. Some lenders look at the whole picture, so, the fact that you are still really doing the same type of profession as you were doing when 'salaried' will work to your benefit. Some lenders do not like the combo self-employed plus rental, unfortunately, salary + rental or self-employed + owner-occupied rental okay for many.