Buying a house as someone who is self-employed

 

My wife and I are both self-employed so this article from OpenListing had some resonance. Obviously you should seek independent financial advice from a mortgage broker and I’m fairly sure on this side of the pond you need to have two years finances but this is still worth a read.

Buying a house as a freelancer or entrepreneur? Here’s what you need to know.

If you work for yourself, or a work-from-home freelancer, and you’re ready to buy a home, you’re not alone.

These days, more people are choosing to become freelancers and entrepreneurs than ever before. And, while you may once have heard that becoming a homeowner is impossible while self-employed, fortunately, that outdated idea is a thing of the past.

Buying a home as a freelancer or entrepreneur may be slightly different than going through the process while working a 9-to-5, but it’s definitely doable. Read on for our no-nonsense guide on what you need to do to get approved for a loan:

1. Prep your financials first

Showing a strong financial history is key to convincing lenders that you’re reputable when applying for a loan.

Unfortunately, that statement goes double for those of us who are freelancers or self-employed. Like it or not, banks view the variable nature of entrepreneur income as a big risk.

As a result, we often have to work harder to show them that we’re a safe bet.

There are a few key points that financial institutions look for when evaluating self-employed individuals. By doing the right prep work beforehand, you can make sure that you put your best foot forward:

Tax returns

Normally, lenders require you to show two years of W-2s when you apply for a pre-approval.

Since freelancers aren’t given W-2s and are often trying to buy a home with 1099 income proof, they’re asked to show two years of tax returns instead.

That said, in order to present yourself in the best light, you’ll want your returns to be as high-net as possible — even if it means taking fewer deductions than usual.

Banks look at your net income when making their determination, so showing the highest possible number will make you seem like a sure(ish) bet.

Debt records

When getting pre-approved, your debt-to-income ratio is the second most important piece.

You can figure out yours by dividing your monthly recurring debt (credit cards, student loans, etc.) by your monthly pre-tax income.

To be approved, lenders will look for a debt-to-income ratio that’s between 36%-43%. If your current ratio is higher, it’s importnat to work towards paying down your debts until you fall within an acceptable range.

Proof of assets

Your prospective lender will also need statements for the last 60 days from all your assets. Assets include things like bank accounts, IRAs, 401Ks, and other investment accounts.

The more assets you can show, the better.

If you can, make an effort to put money aside each month, so that you’ll have a sizable cushion to fall back on when work is slow.

2. Work with a local lender

When you’re a freelancer, big banks and lending institutions may not be the way to go when you feel like you’re ready to buy. The reason is because these companies typically have strict corporate standards regarding who they can approve for a loan.

As someone who’s self-employed, you may ultimately require a bit more flexibility.

In that case, a smaller, local company may be a better fit. Local lenders typically have more ability to make their determinations on a case-by-case basis. They also may have a greater wealth of applicable options to show you, including portfolio loans, where your debt is held in-house for the entire length of the loan. If you’re looking for recommendations, Open Listings works with a network of trusted, top-rated local partner lenders.

However, for the best results, timing is key.

You may want to look into forming a relationship with a local bank before you’re ready to apply for a loan. If they know you and have an ongoing relationship with you — either by holding your bank accounts or other debts — they may be more willing to work with you when the time comes.

3. If necessary, consider a co-signer

Finding a co-signer may not be the most attractive option for self-employed individuals, but when your sole income is not enough to get approved, it may be the most practical solution. In this case, you’d ask a trusted person such as a relative to take on an equal share of responsibility for the loan with you.

Keep in mind: this is a huge ask. You’re essentially asking someone to tie their finances in with yours and to bail you out if you ever default on the loan. You’ll want to choose someone who’s financially stable since they’ll also need to qualify for the loan. You’ll also want to make sure that it’s someone with whom you’re sure you can have a workable, ongoing relationship.

That said, since even the closest relationships can hit rough patches, we highly recommend that you and your co-signer also draw up a private agreement between the two of you. Outline what should happen if you ever find yourself unable to make a payment and any other applicable details of your agreement.

This article originally appeared on OpenListings.

This is not a paid promotion.

House hunting for first-time homebuyers: is there a right way?

I recently came across this interesting article on Openlistings.com. Whilst it is written for those on the other side of the pond, I feel it  may help some people contemplating their first big purchase over here too. : –

House hunting for first-time homebuyers: is there a right way?

A lot of buyers, especially first-timers, worry about whether or not they’re going about their home search the right way.

On the one hand, buyers fret that if they find their “dream home” too early, they might be missing out on something better. On the other, if the process takes a while, they worry that they’ll never find a home that works for them. The FOMO is real.

Keep reading to find out if you’re on track with your home search and what you should do if you find that you need to go back to the drawing board.

How many homes should you see?

Honestly, that depends. While we understand the impulse to try and rely on hard-and-fast statistics, homebuying is a truly personal experience rather than a science.

Trust your intuition. You know your needs, likes, and dislikes better than anyone else. You’ll know when you’ve landed on the property that makes the most sense for you to call home.

That said, though, there are a few things you can do to help speed your search along:

If you’ve been looking for a while and haven’t really found anything that meets your needs, it might be time to redefine search criteria. Sit down and take some time to think about which features you really need to have in your new home versus which are more nice-to-have, wishlist items.

Narrowing your search

Sometimes, narrowing search criteria can get tricky. If you’re unsure of where to start, try using the following as a starting point.

Neighborhoods

Focusing in on a particular area is one of the easiest ways to refine your search. You can start by doing research into different neighborhoods by you. Think about what you commute to work will look like, if the area has amenities that you enjoy, the quality of the school district, and home values.

With that in mind, though, you getting too hung up on a particular zip code can also limit your criteria. The key is keep an ideal location in mind while still staying open to possibility.

Bedrooms & bathrooms

When searching for a house, you should have a firm idea of how many bedrooms and bathrooms you’re after. Whether you’re just looking to accommodate yourself and the occasional guest, are thinking about starting a family in the near future, or want the option to convert a spare bedroom into an office, this information should help narrow your search.

We advise against compromising on this feature because, while it is possible to put an addition on later, doing so takes a substantial amount of time and effort. More often than not, homeowners find that they would rather put their home on the market than go through the hassle of trying to renovate it to fit their changing needs.

Sale price

This is the big one. Once you have the above two details settled, it’s time to narrow your search results further to only those homes that you can truly afford. If you’ve already applied for a pre-approval, that number can be a good place to start. However, remember that a pre-approval shows the maximum amount that you can ask for in a loan. You may not want to borrow up to that amount once you factor in the rest of your monthly expenses.

To find a more comfortable sale price, we recommend using a mortgage calculator to get a sense of what your monthly payment could look like at various loan amounts and interest rates. Then, once you’ve landed on a number that works for you, try plugging that into your monthly budget to get a sense of how the payment will feel in addition to your other costs.

Now what?

The good news is that once you’ve narrowed your search down, your pool of available properties will likely be much smaller than it was before – and much more targeted to meet your needs. From here, your search will be about zeroing in on your perfect match on the basis of which property was the best fit for your personal tates.

You’ll know when a property feels like it could become home versus when you’d be trying to make the best of an imperfect situation. Keep hunting until you find the former.

Ready to kickstart your house hunt? Use the Open Listings app to find homes the moment they hit the market, book tours, make offers online, and save an average of $9,604 when you buy with Open Listings.

*This is NOT advertising or a paid promotion

LivingstonClark Surveyors

It has been bubbling along in the background but together with Andy Pang at Penman Clark I have set up a property consultancy to better service commercial clients.

The business is ‘Livingston Clark’. It is VAT registered, is regulated by the RICS and is registered with the Property Redress Scheme. It’s currently split between the offices of PFM Ltd (Wetherby) and Penman Clark (Wakefield) but we’re hoping to move it into new premises in Wetherby in the coming months.

The website is livingstonclark.co.uk and for now the phone numbers remain the same. You can reach me at pete@livingstonclark.co.uk and Andy at andy@livingstonclark.co.uk .

Hardening Buildings to Physical Threats

Trebuchets, catapults and battering rams have long gone out of fashion for overcoming a building as too are the days of relying on a moat, a heavy timber door and a five-lever mortice lock.

Most modern threats to businesses often come in electronic form but unfortunately there is a rise in physical threats to businesses and people. Whether it be a telehandler being used to remove a cash machine or a car being used to do harm against members of the public. Physical security and hardening of structures is an area we all need to consider.

Design physical security poorly and it can feel like you’re entering a prison. Do it well and your building users won’t even notice they’ve entered an area hardened against vehicles.

I’ve been designing approaches to public and private buildings for over ten years. Whether you’re a property management firm, architects or landscape architects I would be more than happy to review either your current arrangements or proposed development.

pete@peteflintmurray.com

 

Do I really need a survey?

No you don’t. A survey is for your benefit alone and if you feel you don’t need one then you do not have get one.

Some people rely on the ‘Mortgage Valuation’ which is often incorrectly referred to as a survey. A valuation is just that, a valuation. It is carried out by a Registered Valuer and is for the benefit of the mortgage company so they know they can sell the house and get back their investment in the property.

Various studies have suggested that people save money by renegotiating the purchase price of the property following the findings of the report but that is very dependent on the market at the time. More typically you should consider them as a heads-up on what parts of the property require attention.

Types of Survey

There are three levels of Residential Survey, from level 1 being the most basic to level 3 being the most in-depth.

Level 1 Survey:

RICS Condition Report – Often the cheapest way to get a Chartered Surveyor into the property and provides you with an easy to follow ‘traffic light’ report highlighting any significant issues. The report doesn’t involve much investigation into the structure of the property and details are assumed where not readily accessible.

Level 2 Survey:

RICS Homebuyer Report (Survey) – A new product under development by the RICS. It is essentially a new version of the RICS Homebuyer Report (Survey and Valuation) as below but without the valuation. This is a report offered by Pete Flint Murray Ltd.

RICS Homebuyer Report (Survey and Valuation) – By far the most commonly asked for survey. This is a more in depth version of the Level 1 survey. The surveyor will typically spend an 1 ½  to 2 Hours on site. The ‘traffic light’ report goes into detail about the various elements of the building and any issues found. This level of survey does not require the surveyor to move items in cupboards, move furniture or investigate the detail of the structure. This survey comes with a valuation and insurance reinstatement valuation.

SAVA Home Condition Survey – Offered by SAVA registered Surveyors this product is similar to the RICS Homebuyer Report (Survey) but in a slightly different format.

Level 3 Survey:

RICS Building Survey – Sometimes referred to as a structural survey, this is the most involved of the residential surveys and the one advised for any non-standard or any older properties. The RICS Building Survey gives you a detailed report on the different elements of the building along with the ‘traffic light’ guide to issues found. This survey requires the surveyor to look in cupboards, move items and move furniture. It also requires that the surveyor investigates the structure thoroughly and enter any hard to reach places, within reason. Where you have specific concerns you can ask the surveyor to investigate these further and report them via this survey type. A Surveyor will be on site for 2 to 3 ½ Hours.

Bespoke Surveys – If you would like to commission a surveyor outside of the usual suite of surveys then you can discuss with them putting together a bespoke survey. This could take the form of a detailed condition survey or  a short form report on an issue raised by your mortgage valuation.

Choosing a Surveyor

It is important that you choose a surveyor who understands your building thoroughly. There is little point in having someone identify a crack in a property if they do not understand the likely cause. What could be some localised plaster repairs could be a substantial claim for mining damage or vice versa.

Do some research, does the surveyor have experience with that type of property? Are they qualified to issue that type of Survey? Use a site such as the RICS ‘find a surveyor’ website. If you’re using a big firm, ask for the details of the specific surveyor and look up their details. Every Chartered Surveyor is listed on the RICS website giving the date they qualified and their specialism.

Most importantly you must feel free to ask questions. This is a report produced for your benefit on what could be the largest purchase any of us is ever likely to make.

About the author

Pete Flint-Murray is a Chartered Building Surveyor and Chartered Building Engineer. He has over ten years’ experience in the industry and currently runs a practice undertaking residential surveys, specialist property reports and offering consultancy services to larger property companies. He specialises in stone built Victorian properties but has experience with a wide array of structures.

Peteflintmurray.com
01937 520059

HomeBuyer Report (Survey Only) – Update

So…

I set this business up to take a step back from the rat race of commercial consultancy and the primary vehicle to do this was the HomeBuyer Report. This is a survey product offered by the RICS and is the survey product everyone has heard of and asks for.

Last year the RICS did some work and identified that the valuation element could be dropped and this would allow those of us who do not want to get involved with valuation. The ‘survey only’ version of the report has been expected since then. In July this year the Practice Note was issued and a date for the launch was mooted. In August this year I received confirmation that the ‘New’ RICS HomeBuyer Report Survey (without the valuation) would be launched on the 12th of September.

This morning I was advised that the report has not been launched and they no longer have a fixed date for launch.

Those who I have already got booked on will be offered an upgrade to the RICS Building Survey. Going forward if we don’t get a firm date on the RICS HomeBuyer Report Survey I will look to switch to the SAVA Home Condition Report.

If you’re looking to purchase a property (residential or commercial) in Leeds, York or South Yorkshire please feel to drop me a line for  some advice. I have experienced Chartered Building Surveyors covering these areas ready to help. pete@peteflintmurray.com

September Update

How is it September already?!

But this is fantastic news for us as we’re able to start offer the new RICS HomeBuyer Report (Survey) from THIS MONTH. We have already taken our first booking for one and will be completing straight after the new survey goes live on the 12th of this month!

So from £350 (VAT not applicable) you’ll get an RICS Chartered Building Surveyor to inspect your potential purchase and get a detailed report with traffic light indicators of its condition.

If you’re buying somewhere older or somewhere that’s been extended or is a bit more complicated we offer the RICS Building Survey (sometimes referred to as a Structural Survey). These start from £550 (again VAT not applicable) are more involved.

For more information on either of these surveys, to book or to just for a chat drop Pete an email at pete@peteflintmurray.comor fill out the contact form.

 

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August HomeBuyer News

A rare day in the office today. Catching up with sending out quotes and writing up a Schedule of Condition for a retained commercial client.

We had confirmation this week from the Royal Institution of Chartered Surveyors (RICS) that the new ‘survey only’ version of the RICS HomeBuyer Report will go live on the 12th September.

This will widen our product offering to the residential market and compliment the bespoke surveys, defect reports and RICS Building Survey (sometimes referred to as a structural survey) we have been providing to the public already.

If you or your business have any requirements please do not hesitate to get in contact

 

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Update

I have been getting a little nervous lately that the launch date for the RICS Homebuyer (Survey only) Report hadn’t been announced. Today the RICS let me know that the release date is looking like the 19th of May!

There are three levels of home survey and the one most people want is the RICS Homebuyer Report. Up until now this has had a valuation element which has meant that they were typically carried out by valuation surveyors.

Once the new report is launched I will be able to offer the new RICS Homebuyer Report as well as the RICS Building Survey.

If you would like to discuss this or any other Surveying requirements please feel free to get in contact.

Thanks,

Pete