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.
Published or updated September 5, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.