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What to Consider When Buying a House When You're Self-Employed

Bold & Pop : What to Consider When Buying a House When You're Self-Employed

Disclaimer: This post is based off my own personal experience to help you think through some of the important pieces of buying a home. Definitely consult a team of professionals if you’re planning on buying soon!

I don’t have to tell you twice that starting a business is a series of unexpected twists and turns and you feel like you’re shooting in the dark half the time. That’s why Anna and I try to be so open and share everything we learn along the way. So why would it be any different when it comes to areas of our personal lives that are directly affected by our business?

I recently bought my first home over a 2 month period. No joke… I decided to actually buy in the beginning of July, put in an offer in August and closed the first week of September! So I had to learn ALL the things in a short amount of time and now I’m here to share that with you!

Finances

This is obviously the biggest part of buying a house as a self-employed individual and was definitely the scariest part for me personally (I’m also single so extra EEEKKK!)

The first thing I did was look on Zillow to see what I could get in my area for different budgets. (Full disclosure: I’m in North Carolina where real estate is much less than other areas of the country making this much more attainable for me) I used the built-in mortgage calculator to get an idea what my monthly payments would be with different down payments and price points. Based off this information and my own personal budget, I narrowed in on the price point I was comfortable at.

One thing most people don’t talk about in the home buying journey is how much closing costs are and I had no idea how to even figure that out. I knew I needed a down payment (ask your lender if you qualify for any down payment assistance programs! I was a first time homebuyer so I was able to put a lot less down! But don’t forget you’ll have PMI (private mortgage insurance) if you put less than 20% down) but I didn’t know what everything else cost. Luckily I had some friends that already own so I asked them what to expect. One told me to expect closing costs to be about the same as your down payment which actually ended up being pretty accurate in my case!

You can actually get a cash-to-close estimate from the lenders you reach out to during the pre-approval process which is extremely helpful and much more accurate than assuming it’s the same as your down payment. You want to make sure you know this ahead of time because if you don’t have enough cash to close then deal won’t go through and you’ll be wasting your time and potentially money… which nobody wants!

Interview Lenders

Not all lenders are created equal! I read somewhere that majority of homebuyers only contact one lender but you’d be surprised by how much they differ… especially if you’re self-employed!

The biggest difference when buying a house as a self-employed person is when lenders calculate how much you can be approved for it is based off your net income, not your gross. They average the last 2 years of business (so if you haven’t been in biz for 2 years this could get tricky!) to find your qualifying monthly income. They can add some of those expenses back in to boost your income a bit but if you take a lot of write-offs this could be a little tricky for you. I read that if you’re planning on buying as a self-employed person, you should take less write-offs for the 2 years leading up to buying (I know, let’s all roll our eyes collectively at how ass-backwards that is). Luckily I don’t take a ton a write-offs so I was fine which could also be the case for you as well!

If your most recent year was amazing but the previous wasn’t as great, you might want to ask the lenders if they can just use the most recent tax return. I actually had a lender say she could just use my 2018 income without averaging it with 2017 (which would have dropped my qualifying monthly income). There are definitely options and some lenders can accommodate you better than others!

Here are the documents I provided to the lenders and you’ll likely need to provide to your lenders as well:

  • Last 2 years of tax returns (personal and business if you’re a partnership or LLC like Anna and I) including your K1s as well

  • Last 2 months of bank statements

  • Year-to-Date Profit & Loss statement (this is not included in calculating your qualifying income… it’s just to make sure you’re not making less in the current year)

You may need to provide more but these are the main documents my lenders asked for. You’ll also likely have to write a letter of explanation for large deposits and withdrawals to your bank account and any other pieces of information they need an additional explanation for. Basically keep documentation of all large transactions because they will ask to see that paper trail and that includes paying yourself!

Now how to compare lenders and make sure you’re finding the right one for you! I actually Googled and complied a list of questions to ask the lenders I reached out to. This not only helped me compare them but it also helped me learn more about the process. These included (in no particular order):

  1. Do you have experience working with self-employed individuals?

  2. Which type of mortgage is best for me?

  3. How much down payment will I need?

  4. Do I qualify for any special mortgages or down payment programs?

  5. What is my interest rate? (ballpark)

  6. What is the annual percentage rate? (ask to explain the difference)

  7. Are you doing a hard credit check on me today?

  8. Do you charge for an interest rate lock?

  9. What will my monthly payment be?

  10. Is there a prepayment penalty?

  11. Do you have an origination fee? What other lender fees are there?

  12. What are my closing costs?

  13. How long does closing typically take? What could cause a delay?

  14. What documents do I need to get pre approved as self-employed?

  15. Is there any way to get the monthly payment lower?

  16. Will escrow be included in my payment?

  17. What services can you provide beyond my mortgage?

  18. Do you sell your mortgages? If yes, do you still service them?

My decision actually came down to 3 factors: Interest rate, cash to close estimates, and their communication with me/how easy they were to work with. (Note: Some lenders actually have no lender fees meaning lower cash to close. That’s something to consider if you have less cash to put into a home!)

If you contact a lender and they tell you that you can’t get approved for what you want, definitely contact another! I had one lender tell me I could get more money than I said I wanted (this is why it was important for me personally to decide on the price point I was comfortable at.. the higher end of my range would have been doable but stressful during potentially slower months) and then another tell me I could only get approved for $40k less than what I asked for. If the one that wanted to give me less was the first person I contacted, I probably would have stopped my search right then and there thinking it wasn’t attainable at the moment.

Other Things to Consider

Once your offer is accepted you’re going to have a TON of information thrown at you especially when it comes to financing. Keep this in mind when you start this process. There were several times where I said, “buying a house is a full-time job”. I was either running out during the day to look at a house or reading contracts midday after my offer was accepted. Luckily I had Anna to hold down the fort but this might be something you want to consider if you’re a solopreneur!

As I mentioned before, my decision came down to the interest rate in part. The lender I went with actually already had a great rate compared to the others but you can also buy what they call points to get a lower rate too. For example, I could have lowered my rate .125% for $265 or .25% for $1127. This really depends on your goals for the home in the long term and your current financial situation.

Another thing to be mindful of is they’re going to need a lot of paperwork from you, especially as a business owner. One thing I found odd is I provided my tax returns to them but they also needed the tax transcripts directly from the IRS. Your lender will just have you sign a form allowing them to request the transcripts on your behalf but make sure they get both your personal and business transcripts. Mine didn’t have my business (and I didn’t realize they needed them) and 2 days before my closing I was scrambling trying to get these for them.

Which brings me to… yes, they should have known that and yes, I had a meltdown days before closing. And all for nothing. They actually could close without them and while I was having a nervous breakdown everyone else was all “ohh this always happens”. So listen to me when I say… it will happen and it will all work out. Everyone involved wants the closing to stay on schedule. I know this won’t make it any less stressful in the moment but just try to remember that!

These are my biggest takeaways when it came to buying a house but if you have any questions, please leave a comment and I’ll do my best to give you information on my personal experience! Happy house hunting!

P.S. Exciting news! We launched the free #GoingBold Facebook Group and would love for you to join us! Come on over!

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#GoingBold :: Nanci Norelli Smith of Espresso Yourself

Bold & Pop : #GoingBold :: Nanci Norelli Smith of Espresso Yourself
Bold & Pop : #GoingBold :: Nanci Norelli Smith of Espresso Yourself

Tell us your bold boss story!: 

My path to art was not traditional. I earned both a Masters and a Doctorate in a Biological Psychology field from UCONN. For the last 18 years, I was at home, educating my 6 children. While teaching them art, I taught myself. We integrated art into all aspects of learning. It was fun!I believe strongly in the healing power of art. Art played a huge role for my family in coping with issues around my son's autism. Now it's time for me to pursue my passion as a career. I'm so happy to be a Certified Grumbacher Art instructor. I also do pet portraits.

We're all about bold boss moments, tell us about one of yours!: 

I got to meet one of my she-roes, famed colored pencil artist Ann Kullberg, when she came to an art show in Tacoma. I walked right up to her and called her by her first name, and asked her to take a picture with me. We chatted and exchanged emails. I ended up doing some freelance work for her! . I was a project manager for one of her many art books, in which I got to contact artists from all over the world to be included in her book. I also wrote two articles for her COLOR Magazine (November and December 2015) on the healing power of art.

What advice or words of encouragement do you have for the Going Bold community?: 

I always thought either you had confidence or you didn't; not that it is a learnable skill which includes pushing through your fear. I saw this quote from Gayle King who interviewed a 13 year old Youtuber in an Oprah Magazine "Confidence is a choice....a big part of being confident is being brave, and you can't be brave unless you're scared".

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Have an awesome bold boss story of your own? We want to hear from you! Check out the dets and submit your story for consideration.

P.S. Exciting news! We launched a free #GoingBold Facebook Group and would love for you to join us! Come on over!

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Why it's Important to Make Time to Work ON Your Business and not Just IN it

Bold & Pop :: Why it's Important to Make Time to Work ON Your Business and not Just IN it

Have you ever heard, “make sure you’re working ON your business instead of just IN it?” Let me start by saying there’s a reason people say this… it’s true! As business owners, we often start our businesses with BIG goals and this dream big picture in mind. Then things get busy and our unending to-do lists cause us to lose sight of that a little while we just try and stay caught up on work. Don’t get me wrong, there is nothing wrong with working IN your business, but if you want to keep working toward those big goals then you also need to make time to work ON it too.

Can you guess what is often the biggest reason business owners say they don’t get around to working on their businesses? You guessed it… time! That finite resource that feels like we never have enough of. Something I’ve learned in the almost 5 years of being an entrepreneur though is it’s alllll about priorities and planning ahead! It’s amazing how much time you didn’t think you had can appear when you add something to your schedule as a non-negotiable, must-get-done item. When I first heard the idea I thought it was silly… but once I started doing it I saw firsthand how planning ahead could help me prioritize tasks and be more productive so I could have that time for our business.

That being said, this summer we held our first Co-founders retreat and it was focused on justttt this topic — working on our business. So the concept is fresh on the brain! We already do quite a bit of planning and goal setting in our business but during our retreat we wanted to take a step back from our typical metrics and look at things a little differently. So in today’s post I’m breaking down our process and some things that you may want to consider when you spend time working on your business.

Having a Plan

First things, first. Make a plan! If you want to make the most of your time, having an outline of things you definitely want to cover will make the process so much more efficient. During the course of business, Mallory and I randomly will come up with different ideas — some of which we talk through the basics and others we add notes about in Asana and shelf it for later. In fact, we have a few Asana boards dedicated to these ideas. So when we were planning our retreat, we checked in with those lists and prioritized talking points from most to least important to us. We gave ourselves almost a full day during our retreat for planning but the reality is this type of stuff takes a lot of brain power. So try to focus on what’s most important first and if you don’t get to everything you can cover the next topics in your next session. For things like this, you really want to be at your best and not skim over on things so having a plan will really help.

Break Down the Big Picture

Like I talked about above, I’m sure most of you have a big picture in mind when it comes to your business. It’s probably part of what inspired you to start your business in the first place, and the thing you daydream about while you’re working your booty off. Over time though, your dreams and big goals may change which is why it’s important to have check ins! Are the things you set out to work towards 3 years, 1 year or 6 months ago still serving you? Now is the time to think about it! And guess what, if things have changed, you make the rules so now is the time to think about those things and see where any adjustments need to be made.

Something we did on our retreat was break down our big picture goals by things we wanted to accomplish by the end of the year, the next year and then 3 years down the road. Sure, some of those are still somewhat current, but the key was identifying tasks we needed to accomplish that will keep us on the path we are headed on. We did this by getting a posterboard and then using sticky notes in different sections to write our goals on. The stickies were great too because we could color-code (because you know me and organization) as well as move things around.

This exercise was SO eye-opening for us, especially because we were able to not only talk about our business goals together but also our personal goals and passions and how those could impact the path of our business. One of the reasons Mallory and I work so well together I think is that our big picture has always been somewhat similar, even through ALL of the changes we’ve both gone through during that time. Which is a miracle in itself considering we both live in completely different states and are in different parts of our life than we were when we started our business. This also allowed us to step out of having metrics tied to all of our goals and just talk things out a little more too which led to some reallyyyy great brainstorming and ideas we didn’t see coming too. Some of our best ideas have come from impromptu brainstorm sessions and by giving ourselves time to actually run through our ideas, we are able to really strike some gold!

Think About the Work that Brings you the Most Joy

This one also piggybacks off the point above about your big picture. During your time, I recommend taking some time to reflect on what type of work brings you the most joy (or lack thereof). Is there one of your services you look forward to doing more than others? Or are there some things you just dread doing these days? Now is your time to think about those things. You’re the boss lady so if you hate doing something… don’t do it anymore or at least make a plan to phase it out. This was really eye-opening exercise for us too because it allowed us to take a look at the work we’re doing now and evaluate what we’d like to do more or less of in the coming years and what we’d need to do that. Not only that, but we also discovered through our previous exercise that we both have some individual passions that would be awesomeeee additions to our offerings in the future. So take some time to reflect and Marie Kondo your biz offerings if needed!

Evaluate your Systems

Beyond looking at the work you’re doing and where you’re headed. Look at your systems. Are they serving you the best they can? Could your onboarding use some improvements? Would you be more productive if you outsourced some of your work? How about your client experience? This is the perfect time to take a good hard look. We’re all about making consistent adjustments to improve systems in our business and to do so you need to do regular audits.. Some of our big decisions in this section have been hiring our accountant (shout-out to Countless — Brittany is the BOMB!), adjusting our client experience for design projects, tightening our design contracts, and signing up for Asana. All of which at the time seemed like big scary decisions buttt have ultimately been some of the BEST decisions we’ve made in our business.

Planning to Scale

Last but definitely not least… another subject of convo should be on planning to scale. This should go hand-in-hand with the other steps but you actually need to figure out what you need to do to hit the next level! This includes figuring out what those things are, sorting out any research you need to do in the meantime (if software or new tools are involved) and coming up with a tentative timeline for when you want to take those next steps. For us, this included looking ahead to some new services we want to offer in the future as well as talking about when we will be increasing our prices. Our goal both as individuals and a business is to continue to grow and serve our clients the best we can so having these conversations is key to making sure our efforts are consistently supporting that path!

I hope you’ve found these tips helpful and are inspired to make some time to work on your own business! Even if it’s just a little time here or there, it all adds up and I promise it will have a big impact on your business in the long-run. As always, if you have any q’s hit us up in the comments or send us an email!

P.S. Exciting news! We launched the free #GoingBold Facebook Group and would love for you to join us! Come on over!

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