I mentioned recently that I’m considering buying a multifamily home in the area close to the local Ivy League university and renting out the units, and perhaps living in one unit myself. A quick search on Yahoo Real Estate reveals two are available, priced a $665,000 and $420,000. My current lease isn’t finished until July next year, so I’m in no rush to move. But perhaps I should be.
One other fact acting against my thoughts about purchasing a home is my intent to leave my day job in favor of working for myself full-time. Receiving income from a company reported on a W-2 form shows mortgage lenders that I have a stable income, but ironically I could earn more by abandoning the 40 hours I spend each week working for this company and using that time to further build my own business.
Without W-2 forms, mortgage lenders are more wary about awarding loans. I have read that having two years’ worth of tax returns showing income from a business is sufficient for proving income, but any business owner tries to reduce the amount of income on a tax return by deducting legitimate expenses as allowed by the tax code. For the purpose of a mortgage, a business owner might want to show higher income, passed onto the business owner rather than retained in the corporation (not LLC).
So this puts me in a delicate position. A quick run through a mortgage pre-qualification calculator shows that I should be able to qualify for these mortgages considering the cash I have available for a down payment and no current debt. Do I delay leaving my day job behind in favor of keeping my W-2 income or do I press my luck with recent tax returns? Feel free to leave comments with any insight you would like to share.