You may not realize that, for mortgage qualifying purposes, if you are receiving 1099 income you will be considered self-employed. This is regardless of your ownership stake in the business. So even if you are just a regular employee and are receiving 1099 income you’re treated like the owner. Back in the day (really, just last month) when lenders had a range of lower documentation loans they didn’t have to worry about this too much. With the changed climate, lenders will ask that you adequately document the type of income you are receiving.
Depending on your overall situation, lenders may request a very limited set of documentation for your income or a very detailed set. In some cases in order to fully document income lenders may require two years of personal tax returns. In other instances, they may request business tax returns for two years with a full year to date profit and loss statement. It will all depend on perceived risk.
Why you may ask, do they need all this documentation, especially if you’re only an employee? Well, since the employer is not withholding taxes, lenders need to make sure they know your net income. Additionally, lenders want to know if there are any excessively large un-reimbursable work related expenses. These are the two main reasons for the extra level of documentation.
This may sound like the good old days to some but we are now in a brave new world of home financing. My advice is to carefully evaluate your status and document everything as much as possible. Also, make sure you have documents readily available. In this brave new world you need to work a little bit harder but lenders are more than willing to give you a loan if you do, especially a loan right for your situation.
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on Nov 30th, 2007 at 6:14 am
[...] can say something and put my reputation on the line. I need to know things such as wheter you’re self employed or if you’ve had a bankruptcy in the past two year or if you’re a first time home buyer etc.. [...]
on Dec 7th, 2007 at 1:01 am
[...] mindful that if you become self-employed then lenders will want to see a two year history in this new profession before they extend credit. They [...]
on May 21st, 2009 at 5:06 pm
I have been in the computer industry as a sales person for 20+ years. I have always made $60K+ to a high of almost $100K. Last year I got laid off and it took me 12 months to find a job. The only job I could find was a 1099 arrangement for now. I have money to put down on a condo. I have the income $4K to $6K per month for payments. I have good credit and never had a foreclosure or bankruptcy.
The new mortgage guidelines make it impossible for me to get a loan. I have contacted lots of lenders. They all say the same thing, “come back when you get an offer for a W2 job” and we will get you a loan and conditional letter of approval. Unfortunately, finding a salary based position today is almost impossible and if you are over 50, employers throw your resume in the waste basket as soon as you walk out of the room. Wall Street and Congress have ruined the American Dream. I cannot any longer own my home, I must rent. I cannot retire, so I must work until I die on the job. It just doesn’t seem fair, but then who said life was fair?
on May 22nd, 2009 at 1:41 pm
Daryl,
The abuse of stated income loans is really too bad since there is actually a need for that kind of loan for the type of situation you mention. Hope things look up for you soon though!
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on Jun 20th, 2009 at 10:58 am
Well, I got lucky and received an offer from a company that provides me a salary, benefits and commission. I thank God I am one of the lucky ones!