Getting a mortgage as a professional gambler

[MJGolf]

I've filed self employment taxes for the last nine years and was approved for a loan a few years ago so I understand the general process of getting a mortgage as a self employed individual. I guess I was just wondering if the process will be different once the lender sees that your profession is "gambling" versus something more socially understood, if you know what I mean.

I have W-2gs from jackpots; will this be treated similar to a regular W-2?

I have excellent credit and can put 20%+ down (depending on the house price).

Tiny: Today at lunch checked with a lender business associate. Asked him your questions. They just need the income tax returns. Typical documentation. He works for a big regional bank here (but they are known for being conservative and their owners are fairly religious). But he says source of your income is no longer an issue. Gambling has become much more widespread in recent years. Since it's legal enterprise in many states, it's no longer an issue as to source. Hope that helps!

[tiny]

Tiny: Today at lunch checked with a lender business associate. Asked him your questions. They just need the income tax returns. Typical documentation. He works for a big regional bank here (but they are known for being conservative and their owners are fairly religious). But he says source of your income is no longer an issue. Gambling has become much more widespread in recent years. Since it's legal enterprise in many states, it's no longer an issue as to source. Hope that helps!

Thanks!

[ACFERRET]

I recall opening a bank account for my gaming money, and the bank employee was familiar with the concept of professional gamblers and was trying to sell me a credit card and said that I shouldnt tell them you are a professional gambler when you apply for a credit card because they view you as "high risk". I would assume the same applies to morgages

[Sharky]

....and said that I shouldnt tell them you are a professional gambler when you apply for a credit card because they view you as "high risk"...

just explain ROR to them...

[Sharky]

...Last year when I bought a house I put 50% down and took a mortgage for the remaining 50%. The 50% on the house was my choice..

why on earth would anyone put 50% down on a mortgage???....aren't interest rates at like 3%?....can't do better than that???...cash is king, bro...esp in vega$...could loan shark it for an easy 20%

[ZenMaster_Flash]

THIS is a great thread.

It doesn't apply to me as I paid $245,000 in cash.

I suspect my current value . . > $220,000.

No intention of selling so I am unsure.

[zergy]

I don't know for sure how it works, but I some experience with this. I have applied for probably at least 10 loans in the last 5 years and have always been self employed. My experience has been it is all about the net income number you report on your tax returns/pay taxes on. Hiring a CPA may have other benefits, but I don't think a perfectly done tax return compared to a messy one with the same final number is any better for loans. I think banks trust whatever number you are paying taxes on. My taxes tend to be a mess and the banks don't seem to care. I did have one banker tell me a good CPA could help me get some of my deductions back to count as income for their purposes. Every lender wants two years of taxes, some want three. I also have a wife with a W-2 jobs. I think that helps a lot. Another tip is to plan for the fact that they always want the last 2 months of bank statements. Seems like they consider cash deposits over about $3,000 "unusual" and ask a lot of questions/sometimes don't count it. They seem to suspect such deposits are personal loans from a family member or something (can't be used for a downpayment.) So I try to plan at least 2 months of "clean" looking statements to make it easier to get a loan.

You really do have to plan when dealing with cash. I follow the (I think RWM's) advice about making big cash deposits (10k+) at your bank to show you don't care about CTRs, which I know has hurt me on one loan application.

[Freightman]

Canadian and US law differs significantly on this point. If I understand correctly, mortgage interest for personal homes is tax deductible in the US. There is also, apparently, some clawback on sale of home thru capital gains. I don't know the percentages.

At some point in time, wheather now or in the future, you have to face the tax man. A typical US scenario that caught many was the continual refinancing of appreciating personal property to fund the the never ending purchase of consumer toys - and why not, mortgage interest was/is tax deductible. Well, that money needs to be paid back, sooner or later.

Two ugly scenarios, the first being just described and the huge mortgage crisis 7 or 8 years ago. To many people playing the big shot game overextended, and in the ensuing turmoil, lost their homes. The second, the never ending purchaser with the unending never paid off home gets sick, fired, or retires, and the income necessary to support the accumulated debt just isn't there. These people will lose their homes.

Like anything else, exposure to intelligent risk. There is lots of comfort in having a paid up house. It shields you again apt all types of nasty surprises. Im Canadian citzen and resident. My house was paid for years ago. I never had the opportunity to deduct mortgage interest on a personal basis. Nor did I have the ability to deduct household expenses such as lawn care repairs etc. There are ways of being creative on this point, though that's a different issue. My only debt is self supporting mortgage on rental property, again, a different issue. On a personal basis, I owe nothing.

I look at the suggestions of cheap mortgage money vs bigger gains in the stock market. There is truth to to these statements, and again, also risk. If the market falls, you're behind the 8 ball again. I've almost always taken the long term conservative approach to things. I've been chastised more than once for not being more aggressive in the marketplace. I'm still standing, and standing tall while many others hit a bug along the way.

i can add a whole lot more, but I think it's fair to say that the message is to look at all of the options, including your best and worst case scenarios, on a personal basis, consider your personal tolerances, including the thoughts if your significant others, etc. I've talked to a lot of financial people in my time. There are few that I trust, and I place faith in those long term relationships. Don't be do quick to go after the get rich quick schemes.

[Freightman]

K

I don't know for sure how it works, but I some experience with this. I have applied for probably at least 10 loans in the last 5 years and have always been self employed. My experience has been it is all about the net income number you report on your tax returns/pay taxes on. Hiring a CPA may have other benefits, but I don't think a perfectly done tax return compared to a messy one with the same final number is any better for loans. I think banks trust whatever number you are paying taxes on. My taxes tend to be a mess and the banks don't seem to care. I did have one banker tell me a good CPA could help me get some of my deductions back to count as income for their purposes. Every lender wants two years of taxes, some want three. I also have a wife with a W-2 jobs. I think that helps a lot. Another tip is to plan for the fact that they always want the last 2 months of bank statements. Seems like they consider cash deposits over about $3,000 "unusual" and ask a lot of questions/sometimes don't count it. They seem to suspect such deposits are personal loans from a family member or something (can't be used for a downpayment.) So I try to plan at least 2 months of "clean" looking statements to make it easier to get a loan.

You really do have to plan when dealing with cash. I follow the (I think RWM's) advice about making big cash deposits (10k+) at your bank to show you don't care about CTRs, which I know has hurt me on one loan application.

Naturally, lending institutions want you to be at peace with the tax man. Also, naturally, they have the reasonable expectation of being paid back without hassle. This means paying your bills, mortgage, loans, credit cards on time month in month out.

For those out to make large consumer purchases, I think it a very good idea to check your personal credit scores. FICO scores are extensively used by lending institutions. Your score, though not the only factor, is primary in determining your worthiness as a borrower. I'm in slow down mode now, so it doesn't matter much now - I made it a habit of checking my credit score on a regular basis. I would occasionally have business relationships where potential partners would check me out. They wouldn't want to do business with a dead beat.

Other people should chime in here who are more smarter than me. I have credit up the wazoo. My use of credit extends to monthly revolving credit card amounts, always paid in full. The highest debt per month is a very low percentage of available credit. Lenders like that. Zerg is self employed, as am I. He's a Lot younger than I - lenders tend to be a lot tougher on self employed individuals, so, long term history means a lot.

[MJGolf]

Every lender wants two years of taxes, some want three. I also have a wife with a W-2 jobs. I think that helps a lot. Another tip is to plan for the fact that they always want the last 2 months of bank statements. Seems like they consider cash deposits over about $3,000 "unusual" and ask a lot of questions/sometimes don't count it. They seem to suspect such deposits are personal loans from a family member or something (can't be used for a downpayment.) So I try to plan at least 2 months of "clean" looking statements to make it easier to get a loan.

You really do have to plan when dealing with cash. I follow the (I think RWM's) advice about making big cash deposits (10k+) at your bank to show you don't care about CTRs, which I know has hurt me on one loan application.

This has a lot of information in your comment and actually deals with a variety of factors. First, it depends upon what sort of loan you are looking for. A mortgage is DIFFERENT in this day and age from a bank or commercial loan or a line of credit/personal loan. So getting "10 loans" within a short period of time can't just refer to mortgages I'm sure. The purpose makes a BIG difference to a lender/bank.........especially a mortgage lender who is trying to pass the loan to an investor/servicer downstream.

Having ONE liable spouse/borrower with W-2 income makes a BIG difference as it is considered more reliable than self-employment income. But the underwriters will look at your income stream........and if you are truly a successful gambler and have shown your income "steadiness" over two or three years, they will accept it. Still might require adequate "letters of explanation" depending upon a particular investor's requirements. LTV "loan to value" can make a BIG difference in approval. Usually if you have 50% LTV like KJ talked about, you will have literally LITTLE issues with approval if you can prove a semblance of cash flow to pay back the loan. Banks look at liquidation and default issues........not just your income stream and credit score.

Finally, cash deposits DO make a big difference. This is a little know fact of our government at work and using third parties (mortgage lenders) to do their "investigative work" for them. You have to source and season cash deposits...........the government is looking into money laundering and is using financial institutions to do their work FOR them...........it's NOT the lenders that are requiring the source of your cash. It can be a real headache for a self employed person who makes a lot of cash deposits. Be ready to show your ledger and gambling records quite possibly to source your cash. Nature of the beast. And personal loans from family "MAY" be used.....but they will not count as your down payment because THEY ARE A LOAN. If a family "gifts" you money; it's treated differently but there is a percentage limit for underwriting.

My true suggestion is that you get with a lender/broker and discuss these various matters PRIOR to actually submitting your application and finding out what they need specifically. Mortgage lending is a different beast. If the government had it's way, they would want everyone to be a W-2 income earner, with 20% down, appraisal at full value, and a long employment history. But life is not always "cookie cutter" as we know.

(as an aside, mortgage interest is still deductible. Congress extended tax breaks for MI/PMI, VA funding fee, points, etc. again finally. And didn't wait as long for 2015 to make them deductible. However who knows for 2016 tax year at moment.)

[Freightman]

A minor, but self explanatory comment here - the higher the credit score, the better your ability to negotiate favourable terms.

[Freightman]

Usually if you have 50% LTV like KJ talked about, you will have literally LITTLE issues with approval if you can prove a semblance of cash flow to pay back the loan. Banks look at liquidation and default issues........not just your income stream and credit score.

And personal loans from family "MAY" be used.....but they will not count as your down payment because THEY ARE A LOAN. If a family "gifts" you money; it's treated differently but there is a percentage limit for underwriting.

I also saw where someone essentially said - KJ, what are you doing, essentially making reference to additional dollars that could be made in the market. I don't think that's dumb at all, and I'm assuming that a good portion if not all of the down payment came from his bankroll. Firstly, the higher downstroke decreases his monthly nut, and secondly, depending on how the loan is structured, he may have a significant portion of the remaining equity available to him through low cost lines of credit secured by that equity (if he needs it and still considers a part of his bankroll) the interesting question (and it would hel if I was more conversant with US tax law) is if he will continue to put excess funds against his mortgage, provided there is no penalty, which may have the further positive consequence of increasing his credit line, thus maintaining his bankroll size.

I gifted both my sons money towards their first house down payments. The bank of course, wanting to know the source and terms of that money, required me to prepare documents stating that this money was a gift, and further, no repayment was required.

[zergy]

I agree with what you are saying MJ and can tell you know what you are talking about. Just want to clear a few things up and add another thought.

This has a lot of information in your comment and actually deals with a variety of factors. First, it depends upon what sort of loan you are looking for. A mortgage is DIFFERENT in this day and age from a bank or commercial loan or a line of credit/personal loan. So getting "10 loans" within a short period of time can't just refer to mortgages I'm sure. The purpose makes a BIG difference to a lender/bank.........especially a mortgage lender who is trying to pass the loan to an investor/servicer downstream.

I actually was talking about mortgages. In the last 5 years I have had 2 different homes with a refi and 4 HELOCs. I have also have a handful of other properties (usually own 4 at a time.) I end up at banks a lot because I buy low, put in work, and take the money back out as soon as the bank will consider it.

My true suggestion is that you get with a lender/broker and discuss these various matters PRIOR to actually submitting your application and finding out what they need specifically.

This is good advice, but in my experience every banker will tell you they can help you and ask for a bunch of paperwork. Then underwriting comes in and sometimes it doesn't work out. Another tip is to try different banks if it doesn't work out. Results vary widely in the same situation. Couple quick stories: 1.) I applied for a HELOC at bank A. They told me they couldn't do it - no equity. Applied a month later at bank B. They gave me twice what I asked for with little to no questions asked. 2.) Applied for a commercial loan at bank C with a big down payment. They wanted an appraisal that would cost $3000 and take 2 months. Said it was a federal regulation - no way they could do it without the appraisal. Bring the same thing to Bank D. They say no appraisal needed - big downpayment + good finances = no problem. I never know what to expect when going into a bank to get a loan.

And yeah, having a wife with a W-2 makes my stories less relevant to someone relying on professional gambling alone for a loan. Another factor from my personal experience is I was a small business owner for most of this time. It was a service business - not gambling related. I also have good credit and lots of history as Freightman mentioned which is a bit different than a first time buyer. I do think some of my tips are helpful to someone in this situation though.