My wife and I had a master plan to sell our San Diego-area residence and use the proceeds to live mortgage-free in the boonies outside of Columbus, Ohio. As I described in an earlier post:
“We have just about enough equity in our townhome to sell and live mortgage free in the Midwest. We hope to find a smallish house in the Columbus ‘burbs with a nice-sized yard. That way we can keep the kids outside all hours of the day and have lots of sex. We’ll also watch Netflix.”
But things changed once we started looking for homes. We became picky to the point where it increased our price range. I wanted a home with a great room (i.e. a big ass downstairs with high ceilings and a loft) and Amber wanted a yard with mature trees. Then came a finished basement; then came wood floors; then came a bathroom with a jet tub/perineum tickler.
We ended up making an offer on a larger-than-anticipated home with most of these qualities, though instead of wood floors it has colorful Prince-themed carpet, and all of a sudden we needed a mortgage.
I had one big hurdle. I do gig and contract work. For tax and mortgage purposes, I’m considered a small business. Lenders strongly prefer applicants with traditional W-2 employment over those of us who try to make our own way without having The Man’s foot on our throat. The days of bankers giving out mortgages like Oprah gave out cars are long gone. Even worse, I had only officially been in business full-time for a year. Banks require two years of business tax returns just to pre-approve a mortgage.
But dammit, with a little grit and a lot of struggle, we got the mortgage. Here’s what I learned; follow this advice and you too can be strangely fulfilled by 30 years of debt.
Stay Away From The Big Banks
Big banks are not to be trusted. If they were a person they would have the eyes of Vladimir Putin and the slick smile of prosperity preacher Joel Osteen. Their recent history includes opening accounts in customers’ names without permission and charging higher interest rates based on melanin. And they are infamous for approving home loan borrowers, only to leave them hanging at closing due to a mistake by a junior loan officer who wears ill-fitting slacks and wants to push as many loan applications as possible and hope for the best. Hell, don’t believe me, just look at their mortgage lending reviews.
Go with a local credit union or portfolio lender. Their lending requirements are more flexible and they accept “What had happened was…” letters describing your credit and financial history. If you work in the gig or contract economy, they are your only real hope for a mortgage. You can find a portfolio lender in your area by using this secret tool called Google. I can also refer you to my lender, a great company who gets s**t done.
(Hard money lenders (i.e. private investors) are also an option, though an expensive one. The hard money lender I talked to asked for a six percent loan fee, plus closing costs and a 10 percent interest rate. This may have worked if I was looking to flip a home, but for a primary residence loan I would have been better off borrowing money from one of my high school friends who pursued a career as a drug lord shortly after graduation.)
A Big Ol’ Down Payment Helps
Thanks to Barack Da Gawd’s leadership in overseeing the housing recovery and the sale of our first home, we were able to put 45 percent down on our new house. A large down payment means instant equity for you and the lender and also shows you’re good at saving and/or investing. Now, 45 percent down is atypical and unreasonable in most instances, but if you’re a contractor your financial background is instantly suspect, so you want to put at least 20 percent down. That’s a lot of money, but doable over time if you stop buying shiny things, grab an extra gig, and temporarily live a peasant life. You’re only other option is to be a lucky but hopefully not spoiled bastard who benefits from generational wealth and can ask “Father” to slide you $40,000.
A Really Good Friend With A Steady Job and Great Credit Is A Really, Really Good Friend
We found the house we wanted in December. However, I could not get an approval letter to make an offer until I was able to get my tax filing transcript in January, by which time the home would have been sold. (Homes are selling in a day in Columbus.) My lender suggested I get a co-signer who would be removed from the loan after all my documentation was ready in a month or so. I asked a few of the few people in my inner-circle. All but one had funny money or swaggerless credit. We po’ folks tend to hang out together.
Anyway, one of my groomsmen came through for me and we were able to get our offer accepted. I filed my taxes and closed the loan without a co-signer. In short, it’s good to have someone on your side who can vouch for you if needed. Speaking of taxes, as a contractor, be sure not to take too many business deductions if you’re buying a home. It reduces your income for tax purposes and makes you look broke when trying to get a mortgage approved. Bite the bullet and let The Man have his keep for a year, preferably two.
Let Your Clients Know That You Want To Settle Down and Commit
We contractors often have one-time clients or unofficial long-term clients, the latter being people or organizations you consistently work for without a written contract or with a contract that has lapsed. For the sake of getting a home, ask them to make the relationship official. Your loan officer will want to see a signed contract from as many clients as possible and then your underwriter will want to see said contract over and over again, along with a letter clarifying the financial arrangement. It’s a headache, and some clients may be apprehensive about being bound to a legal agreement, but if they like you and want to see you not be homeless they’ll help you out.
Prepare for At Least 30 Days of Frustration
Obtaining a mortgage is a far too drawn out transaction these days, even more so if you do not have a traditional job. There are rules and regulations and an obscene amount of paperwork. You have to satisfy the requirements of your loan officer/mortgage banker, who’s your primary contact and guide and hopefully competent, and an unnamed underwriter who’s spoken of but never seen or directly contacted. (If you grew up in the ‘80s and watched Diff’rent Strokes, the underwriter is to the loan applicant what The Gooch was to lil’ Arnold.)
But the most frustrating aspect of the process is not being 100 percent sure that you’ll get the house until the day of closing. Now, your loan officer can predict final approval with a high degree of certainty, but you never know for sure-for sure until you sign papers and have keys in hand.
There came time when I was ready to walk away and implement my crazy backup plan: get a whole bunch of credit cards and deposit balance transfer checks into my account to buy the home with cash. I mean, come on, all that documentation and explanation to get a mortgage that will cost me double the amount I borrowed if I take 30 years to pay it off? But I listened to my mortgage banker—who obviously had an interest in seeing me get the home—and submitted and resubmitted documents (mostly) without complaint.
Now we’re all set to move in our new home, pending the replacement of the Prince carpet with bamboo floors, and with the goal of paying off the mortgage in three years as opposed to 30. Most importantly, I look forward to the kids playing outside in the yard all hours the day while we watch Netflix…and so on.