If you have a small business (sole proprietorship) to add to your Income to help qualify for a better loan how long must your business show profit (w2's)?
I hear some agents say 2 years some say only 1 year? I filed for my business the first time this past April and I really want to buy a home by the end of the year, will I be ok?
FYI: I will have been at my current fulltime Job 2 years In November If this has anything to do with said question.

It's unlikely that your side business will help you much. Most people who are self employed (like realtors and loan officers) pay VERY high taxes ... usually around 40% (25% income tax + 15% self employment tax). Thus to make $10,000 in spendable money you need to produce about $17,000 in net income.

Because of this, self employed people tend to deduct everything under the sun as a business expense. Car leases, internet connections, computers, some vacations, meals, postage, etc. can all be deducted as "business expenses". This lowers your income on paper requiring you to pay less in taxes.

If you are trying to use this extra income to help you buy a house, you're using a "full documentation" loan. You'll need to provide W2's and other tax forms to show your income. Most lenders will want 2 years of history. It would probably also help if a professional CPA prepared your taxes. This reduces the likelihood that you're cheating on your taxes to get a loan. FWIW, you can deduct your accountants fees as a business expense ... but that would lower your income.

So, long story short, what most self employed people do is get a "Stated Income" loan. Those are simply loans where you "state" how much money you made. You don't have to provide all the documentation and the lender won't check much. All you need is a good credit score and a stated income that sounds believable. Usually, you will have to pay a slightly higher interest rate for a stated-loan over a full-doc loan but it's usually the only option.

I'd rather pay an extra 1% on a stated income loan and take the 40% savings on my business tax deductions. I'm a lot better off financially. Besides, interest rates are very low right now, historically speaking. Even a "bad" rate of 7% is pretty good. Also, you seem to be at opposite ends of the same problem. People go into business to pay LESS taxes and make MORE money. You seem to by wanting to pay MORE taxes and make LESS spendable money just so you can save 1/2% on a home loan. I can't say that I'm on board with your plan.

The best person to answer these types of questions is your Loan Officer. Give them a call and ask them what you should be doing if you want to buy a house at the end of the year. Chances are, you'd get farther, faster just paying off your debt (car, credit cards, student loans, etc.) than you would trying to increase your verifiable income by a substantial margin.

Good Luck.

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Thanks for the advice... I have also heard about these loans given to people not having to provide Info on where their money is coming from. I don't get how that can be allowed? I understand a higher Interest rate but WOW! Also, I am not one of these businesses that look to write off evryhing under the sun. I don't beleive In that because It can comeback to bit you In the rear. I write off what Is obvious and that Is primarily it. My lease Is up In October so from the sounds of it I guess I will have to stick it out another year.... Any other advice on this matter Is greatly apprecaited. Thank you!

The loans where you don't have to supply a lot of information is called a "no doc loan". Basically they just take your word for it. I believe your credit score has to be extremely high to qualify for this. A mortgage broker could definitely give you more information about this type of loan.

Well, I guess that would not work for me then because my score Is In the mid 600's but I am still climbing.... I did speak to a broker today and he said from everything I have told him that i should be ok to go just not this year because neither my business or my job have been established for 2 years yet. So I guess I will be waiting a bit longer...

Are you trying to get a better interest rate or are you trying to get a loan for more money?

Credit Scores and Doc/NoDoc will affect interest rate. You need to get your score above 720 to get the best rates. That's pretty easy to do. A credit score is a reflection of your payment history. Pretty much the only way to get the score down low is to not pay on things on time. If you want to improve your scores, don't be late on ANYTHING ... EVER. Rent, Cars, Cards, loans, other bills ... whatever. Always pay on time or early. If you can do this, your score will be high.

If you want to get a bigger loan, you'll need to increase your income substantially. OR, you can decrease your debt. Paying off your car and a student loan could free up $600 a month. This freed up money will allow you to allocate and additional $600 towards a house payment (roughly ~$60,000 more house). Your total debt is weighed against your income and that ratio determines how much money a lender will loan you. Lowering your debt gets you more money from the bank for your house.

If you want a house and you want to improve your scores, thats pretty much all you have to do: never be late on a bill no matter what; pay off as much debt as you can; increase your income as high as possible.

That's it.

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Denton Real Estate is the premiere website for home buyers in the North Texas area. If you're looking for Denton, Tx Real Estate, find your way home at DentonRealEstate.com.

I would actually like to get a good Interest rate If at all possible. I am not looking to buy a huge house, even a townhome will do to start. So I don't really need a bigtime loan. I just know that paying rent right now Is just like throwing money out the window.

As for credit score, I am taking care of all of that right now. You see earlier this year I finally realized It was time for me to clean up my credit (stupid to wait that long considering I will be turning 30, I know) I had a score of 544 and now I am at about 635 - 640. What i did was start off with a secured creidt card maxed it and paid it right away and then next thing you know I was flooded with credit card applications and what I did was accepted all the cards with zero percent interest rates and used those and by the time the interest was about to kick in I paid those off in full. I will be done paying off my car loan In August and the only debt I will have are some small collections from years past (total about $1500.) that i need to get In contact with because I don't mind paying them but I want to be sure they will remove them from my credit report once I pay them. I have read In some forums of people paying off their collecions only for the companies never to remove the strikes from their credit reports. So other then that I am doing fine In the credit building.

Last year between my business and my job I grossed over 100k so I should be able to qualify for a decent loan once I get all my ducks In a row. I just like to soak up more Information concerning all this so I am as prepared as I can be when the time comes.

Yeah, those outstanding collections are what are killing your score. You don't need credit cards to "help" you. It's just another thing to be late on ... plus they cost too much in interest.

Save up $1500. Then call the company to settle up. Ask for them to submit the bill to you IN WRITING. Also be sure to get a confirmation that it will be considered PAID IN FULL. Do not accept a "settlement" or anything else that will offer you a reduced rate. That will show up as a bill you didn't fully pay and the lender took a loss on.

$1500 isn't much money. Save it up and pay it off. Then just wait for a while and you'll be in the 700's.

If you're making $100k+ and renting, you should be able to come up with a down payment. If you can get 5% or 10% down (or more), that will help your rate and increase your lendability substantially. With that kind of income, there's no reason you can't get everything squared away in short order.

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Denton Real Estate is the premiere website for home buyers in the North Texas area. If you're looking for Denton, Tx Real Estate, find your way home at DentonRealEstate.com.

I am more then willing to pay the $1500. due (spread among 4 different companies) but I am a bit reluctant when i read things on other forums claiming that this maybe the wrong thing to do. For example here Is a post I copied from another forum:

"You dont have to pay a collection to have it removed. you say it will stay there until 2010, so that must mean that the collection was originally reported sometime in 2003. here's how it works:whether you pay the collection or not, your score will not change. paying a collection has no effect on your score whatsoever. now the collection going unpaid will stay on your report until 2010, that is true, but if you do pay it, that will renew the date of last activity to 2007. which means that if you do pay it, it will be on there until 2014. hears why: a collection stays on your credit file for 7 years from the date of last activity, wheter you pay it or not. That is a CRA purge rule. as the collection ages, your score will slowly go up, until it falls off,then your score should take a jump. if you do pay the collection, your score may drop as you are renewing the date of last activity. If you plan on applying for credit in the near future, then i would pay it as then at least that would "look" better to the lender,. if not, let it fall off in a couple years."


So after reading that what should I do? My Derogatory Items date from 2003 through 2005. I am not sure what to do about this. Any advice?

Any other advice is greatly appreciated... Thank you.