Will Self-Employed People Be Able to Buy Houses in the Coming Economy?

If you are self-employed and you want to buy a house in the US, there are some hoops you have to jump through. Specifically, you have to show two years of income in the same business — and you can’t earn much less in year two than you did in year one.
The mortgage broker adds your income together for the two years, then divides it by twenty-four and that’s the monthly income they use when deciding how much to lend you — regardless of how much you might actually be earning at the moment.
All of that is to say that it’s difficult and tedious to try to get a home loan if you’re an American who doesn’t have a day job.
Maybe that’s as it should be. I don’t know. We all saw in 2008 what happens when banks start handing out mortgages willy-nilly, right? Anyway. It’s taken me a really long time — but in April, I finally became a self-employed person with a pre-approval letter in my pocket.
Of course, now we’re in the midst of a global pandemic. The economy is rocky at best. Smart people whom I trust believe that we’re heading into at least a couple of years of exceptionally difficult times.

The real estate market is full of notoriously optimistic people.

Everyone — from the realtor to the mortgage broker to anyone who has a house they might want to sell some day — insists that everything is fine. Nothing to see here.
Historic unemployment rates? Not affecting the housing market.
Facing a possible Great-Depression-level economic downturn? Not in the housing market.
Businesses closing down all over the place? The housing market isn’t feeling that pinch at all.
I get it. They don’t want anyone to think there might be a problem, because that might actually cause the problem. Pretty much everyone works on commission and homeowners are invested in keeping their market value up.
But buyers need to (and deserve to) have a real idea of what’s happening. We’re pretty much on our own there.
Here’s what I think. Keep in mind that I’m a layperson with no experience in finance. This is just me, observing. I lived in Las Vegas in 2008 and saw first hand the manic optimism during the bubble and then the devastation in one of the hardest-hit areas of the country when it burst.
It seems impossible to me that the housing market won’t be affected by what COVID is doing to our economy. I think that banks will make it more difficult for self-employed people to borrow money because the volatility in the economy will be worse for them than for people with a steady income from employment.
I’m basing that on the fact that the mortgage company we’re working with, Rocket Mortgage, has changed the rules for self-employed borrowers twice in the last month. First, they made it so that only 3/4 of my income counts, and then they said I need to have six months of mortgage payments in reserve in the bank.
I’m all for optimism, but I think that there are some hard times on the horizon, and the idea that those hard times will completely bypass the housing market seems silly to me.

So now we have to make decisions.

There are almost no houses for sale in our town right now. Far fewer than there usually are this time of year. But, we’re keeping our eyes open and in the meantime thinking about what we really want.
We have a list of things that are important to us if we’re going to buy a house.
It has to be a big house — we care for my parents-in-law who both have Alzheimers Disease and we have three kids. Two of the kids are adults and don’t live with us, but our son has autism and we need to have space for him if he needs it.
And, to be honest, I feel like it’s something close to a calling for me to be able to take in people I care about who need somewhere to be safe and cared for.
It has to have a good kitchen.
It has to have some yard area — at the very least space for our dog, but room for gardening would be ideal.
And we have to choose between buying something now because we’re going to be able to get a mortgage now, or waiting to see what happens.

We could keep renting and wait for people to decide they want to sell.

Pro: We’ll wait until we get the exact right house (if there is such a thing.) We’ll be able to see what the economy is going to do, including whether or not house prices will fall.
Con: I’m tired of depending on landlords. The banks could change the rules for self-employed people, making it so that we can’t get a mortgage after all if we wait.

Another option is to just buy the house we’re already in.

Pro: We’re already in it, so no moving expenses or work. It’s big enough — we anticipate that we’ll need to provide care and have space for people if things do get very bad in the near future. It’s well-built and anything that needs to be done to it is cosmetic. We know all it’s quirks, after living in it for 18 months. It’s inexpensive. It has a new roof and furnace.
Con: A little bit of FOMO — we won’t get a new house. There’s very little yard space. While it’s inexpensive, the owner bought it at the top of market value, so there’s no wiggle room in the price.

We could make an offer on the one house that comes close to what we want that’s for sale right now.

Pro: It’s a lovely house — very close to a dream house. The owners are anxious to sell, because they’ve already moved, so they’ve lowered the price. It has a really beautiful yard that’s plenty big enough.
Con: I don’t like the kitchen. At all. It’s got a typical Victorian-house kitchen — small and isolated from the rest of the house. There’s nowhere for anyone to sit with me while I cook and there’s no room to expand it. While the yard is amazing, the house is on the main road and there’s a lot of traffic noise. There’s no air conditioning in the house, which makes the beautifully finished attic almost unusable. Even with the price reduced, they are asking about twice as much as it would cost to buy the house we’re renting.

I think we’ll end up buying the house we’re in.

Unless some incredible house comes on the market in the next few weeks, I think that the best option of the choices we have is to buy our current rental. It’s not perfect and I can’t help that part of me wants something more, but it’s a great house and it suits our needs.
The house is already very inexpensive. If we wait, maybe we could pick up a house that’s super cheap — but that would almost certainly be because the owner has gone into foreclosure. If the house we’re renting went much below what the owner needs us to pay, that would be the cause.
Waiting with the hope that people will start getting foreclosed on and I can scoop up one of their houses on the cheap doesn’t feel very good to me.
I’m concerned about the near- to medium-term future. Even in the best of circumstances, we’re in for a rough year. And the recovery from that year might take a long time. And, if I’m being very honest with myself, I’m not convinced that the rough period will be over in a year.
I’m not convinced that if we wait it out, we’ll be able to get a mortgage because of my self-employment.
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