First of all, I’m a complete beginner, I know almost nothing and I expect to be made fun of. Here’s my question: I currently live with my girlfriend. I was looking for houses and found a very nice quadplex that was just renovated.
I run two businesses, but I personally have no source of income. Here’s why: In addition to my two existing businesses, I’m working on starting a third, but they’re named after my girlfriend for privacy reasons. Money is not a problem.
““It’s a popular college town with new tenants coming and going every year. I have no problem finding tenants.»
I would like to take advantage of both of us using a Federal Housing Administration loan before we get married. I know FHA is applicable up to a four unit home, and I was wondering if it was possible for me to get a loan to purchase this unit with no income.
The unit costs $800,000 and each unit has two bedrooms in a neighborhood where the average rent is $1,000 per room. The estimated mortgage would be $5,000, and if I rent each room for $1,000 apiece, that shows a monthly rent potential of $6,000 to $7,000.
It’s a popular college town with new tenants coming and going every year. I have no problem finding tenants.
Am I dreaming or would the potential rental income be enough to make the purchase?
American dreamer
‘The big move‘ is a CNET column that examines the ins and outs of real estate, from finding a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@Crumpe.com.
This week’s Big Move question was spotted on Reddit.
Dear American Dreamer,
Lending standards are quite strict with conventional mortgages, so you may run into problems since you have nothing on paper to prove your income. If your privacy reasons are tax-related, your chickens may now be coming home to roost. If this is the case, you may want to consult the tax professional.
For an FHA mortgage, the lender will need to verify your employment for the last two full years. If you are self-employed, you will need to produce documents showing the financial situation of the company, etc. Regardless, you will likely need to submit sufficient proof of your income or assets to qualify for a mortgage along with your W-2 or 1099 and other tax filings.
Even if you have a rough estimate of the projected income from your rental properties, you’re missing some other factors related to homeownership – from down payment, closing costs and insurance to maintenance and repairs that will be in progress. Mortgage insurance may be required on certain loans.
You may also face costs associated with tenant disputes. If you rent your home to a bad tenant, you may have to evict them later. Do you have enough savings to cover legal fees and costs associated with such a process?
The problems with “estimated” income
Another potential problem: your estimated income will not be taken at face value. You will need to obtain an appraisal to estimate the rental income which can then be presented to the lender. The appraiser will give you a fair market rental value for the units. Additionally, only 75% of your projected rental income will be considered, not the full amount, when applying for a mortgage.
Finally, consider today’s market: high interest rates, as well as high real estate prices. Will you be able to successfully purchase this home, or will there be competition that will drive the price up?
There are some types of loans that allow you to purchase homes with no income and no employment verification, but keep in mind that these are not qualified mortgages (QMs). Non-QM loans are not insured or guaranteed by the FHA, Fannie Mae or Freddie Mac.
After the subprime crisis, the United States enacted consumer protection laws under the Dodd-Frank mortgage law. Non-QM loans may be easier to obtain, but they may carry distinct risks.
Ultimately, you will likely hit a wall due to your lack of income. You may need to restructure businesses to carry your name, which would mean you are self-employed instead of a business owner (assuming you have a title that does not suggest you are a co-owner ).
It’s worth thinking about the process of purchasing a multi-unit home. But without reported income, you may need to hire an accountant and lawyer to revamp your business interests and make this dream a reality.
A report: Here’s how much money you need to buy a $400,000 home with an 8% mortgage rate
By emailing your questions, you agree to have them posted anonymously on CNET. By submitting your story to Dow Jones & Company, CNET’s publisher, you understand and agree that we may use your story, or versions of it, across all media and platforms, including through third parties..
Other columns by Aarthi Swaminathan:
I listed my house 3 weeks ago, but I have no offers. I want to lower the price. My agent says no. Who is right ?
“It makes me sad”: I want to move into my grandparents’ old house, but my uncle refuses to give me the keys. What can I do?
“It just seems like a waste”: I bought a 3,000 square foot house at a 3% interest rate. It is too big. Am I selling?
2023-10-24 02:39:05
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