1099 And Self Employed Borrowers Mortgage Guidelines

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1099 And Self Employed Borrowers Mortgage Guidelines

This BLOG On 1099 And Self Employed Borrowers Mortgage Guidelines Was Written By Alexander Thomas Carlucci of Gustan Cho Associates

There are strict mortgage lending guidelines on 1099 and Self Employed Borrowers unlike W-2 income wage earners.

  • Borrowers who are 1099 and self employed borrowers require two years tax returns in order to qualify for mortgages
  • 1099 and self employed borrowers who just opened a business less than for two years cannot qualify for a mortgage until they have two years longevity as 1099 and self employed borrowers
  • Also, mortgage underwriters have full discretion on how they qualify self employed borrowers with regards to declining income and on how they average the prior two years gross adjusted income

Declining Income On 1099 And Self Employed Borrowers

For 1099 and self employed borrowers who show declining income, the adjusted gross income is NOT averaged for the two years.

  • Here is a case scenario:
    • If a 1099 and self employed borrowers has an gross adjusted income of $100,000 in 2013
    • and $50,000 in 2014
    • the mortgage underwriter will use the lesser of the two years which is $50,000 and not the $75,000 average of the two years
  • This is because of declining income
  • Here is a case scenario:
    • If the gross adjusted income is significant
    • such as the 2014 income being $20,000
    • and the 2013 gross adjusted income being $100,000
    • then the mortgage underwriter can question the income altogether
    • this is due to the massive declining of income
    • borrowers may not be able to qualify

Mortgage underwriters will reject any income from the 1099 and self employed borrowers on cases where the decline in income is significant.

How Do Underwriters Calculate Income For 1099 And Self Employed Borrowers

If 1099 and self employed borrowers have similar incomes on the two years tax returns, underwriters will average the two years of income. The monthly income will be the average of the two years.

  • Underwriters can discount and not count a one time huge loss on 1099 and self employed borrowers
  • This holds true if the borrower can show it was a one time huge loss
  • Underwriter need to believe borrower will not be a recurring loss year after year

1099 Wage Earners Versus W-2 Wage Earners

1099 wage earners who need to qualify for a mortgage loan borrowers needs a two year history as a 1099 wage earner.

  • If a W-2 wage earner goes to a 1099 wage earner status, then two years of 1099 income is required from the start date of the 1099 wage earner status date
  • If a 1099 wage earner goes to a W-2 wage earner status, then 30 days of W-2 income is required to qualify for a mortgage loan

Gaps In Employment

Borrowers with gaps in employment can qualify for mortgage without being employed with the same employer for past two years. There are certain rules and mortgage lending guidelines they need to meet in order to qualify for a mortgage loan.

  • Borrowers unemployed for six or more months, they need at least six month on their new job to qualify for a mortgage loan
  • Borrowers who has been unemployed for less than six months, then they need 30 days of paycheck stubs from their new employment to qualify for a mortgage loan

1099 And Self Employed Borrowers With Negative Incomes

One of the luxury of 1099 and self employed borrowers is that they can write off many business expenses where it reduces their annual income. Deductions allow tax filers to pay less in income taxes. Unreimbursed business expenses reduces the amount of qualified income that can be used when qualifying for mortgage.

  • Unfortunately, this hurts them when qualifying for a mortgage loan
  • This is because many times 1099 and self employed borrowers have negative income
  • Many file a loss on their income taxes
  • On situations where 1099 and self employed borrowers have negative income and declare losses, the mortgage underwriter will just calculate it as zero income
  • Adding a non-occupant co-borrower can solve borrowers with zero income
  • Only the non-occupant co-borrowers income is used in calculating income
  • The loss of the main borrower is not used to offset the non-occupant co-borrowers income

About The Author Of 1099 And Self Employed Borrowers

Alex Carlucci is the author of 1099 And Self Employed Borrowers and a contributing writer for Gustan Cho Associates Mortgage News. Alexander Thomas Carlucci is a veteran mortgage professional with over 25 years experience as a full time licensed mortgage loan originator. Alex Carlucci is an expert on government and conforming loans and is one of the top loan officers with Gustan Cho Associates Mortgage Group. Over 75% of Alex’s borrowers are folks who could not qualify at other mortgage companies due to their overlays on government and conventional mortgages. Alexander Thomas Carlucci is also an expert on non-qm loans and bank statement mortgage loans for self employed borrowers.

10 Comments
  1. Piotr Bieda says

    Great blog by Alex Carlucci of Gustan Cho Associates. Alexander Thomas Carlucci is an expert in helping self employed borrowers qualify for home loans. Alex Carlucci of Loan Cabin Inc at Gustan Cho Associates Mortgage Group is also an industry mortgage expert on non-qm loans and bank statement mortgage loans for self employed borrowers. There are no income tax returns required on bank statement mortgage loans for self employed borrowers. We take 24 months bank statement deposits by borrowers and average borrowers deposits over past 24 months. That monthly average deposit is used as borrowers monthly income. Withdrawals from bank accounts does not matter. Up to 50% DTI. No private mortgage insurance is required. Verification of rent is required on bank statement mortgage loans for self employed borrowers. No maximum loan limit requirements with non qm loans and bank statement mortgage loans for self employed borrowers. 10% to 20% down payment is required. The amount of down payment is dependent on borrowers credit scores. Mortgage rates depends on the borrowers credit scores. Alex Carlucci of Gustan Cho Associates at Loan Cabin Inc has a national reputation for being able to get loans closed other lenders can’t. Alex Carlucci is known by many real estate agents and mortgage lenders as The Mortgage Whisperer due to his vast knowledge on mortgage banking. Alexander Thomas Carlucci is also a contributing managing Editor at Gustan Cho Associates Mortgage News.

    1. Gustan Cho, NMLS 873293 says

      Alex Carlucci is one of our top loan officers at Gustan Cho Associates. Alexander Thomas Carlucci always goes above and beyond for all of his borrowers. Alex Carlucci also has the most positive reviews next to Michael Gracz of Gustan Cho Associates by borrowers. Mike Gracz and Alex Carlucci are the top two loan officers at Gustan Cho Associates Mortgage News. Very proud to have both Alex Carlucci and Mike Gracz represent Gustan Cho Associates.

  2. Alex Carlucci says

    Thank you Peter and thank you Gustan for the positive review of my Blog. Borrowers remember there are always options on how to get your loan done. Either being w2, 1099 or self employed. W2 income is the easiest. If self employed or 1099 you need to remember that your tax accountant will tell you that you can write off expenses but this will hurt your ability to purchase because they go off you ADJUSTED GROSS INCOME. Adjusted gross income is line 37 of your tax returns and they average the last 2 years and as I said earlier in this post declining income can even be treated as no income in certain cases. Some good news is if you have a business that has been registered for 5 years Freddie Mac has a special program for you that allows you to use just the most recent tax return. So if you had a slow year prior then this will help your purchasing power.

    1. Gustan Cho, NMLS 873293 says

      Another thing Alex is that you do a lot of W2 Income Only Mortgages where income tax returns are not required. You should explain more to our viewers on how you do these W2 Income Only Mortgages on FHA, VA, Conventional loans. You need to be a W2 wage earner and lenders will not ask or require for income tax returns. It is one of the hottest loan programs Alex Carlucci of Gustan Cho Associates has to offer. Many home buyers with a lot of unreimbursed business expenses on their tax returns can now qualify for W2 Income Only Mortgages. It is available on FHA Loans, VA Mortgages, and Conventional Loans. Alex Carlucci of Loan Cabin Inc. can definitely help.

    2. Gustan Cho, NMLS 873293 says

      Great information by Alex Carlucci.

  3. Mike Gracz says

    Correct,

    We do not have any lender overlays, so we do not need tax returns! The W2 only program helps many of our clients. Alex Carlucci from Loan Cabin Inc is one of the top Loan Officers on our team. He is very knowledgeable with mortgage guidelines. FHA, VA, Conventional, USDA, and Jumbo Alex Carlucci knows it all! If you reach out to Alex and he does not answer make sure to leave him a message, he will always call you back.

    1. Gustan Cho, NMLS 873293 says

      Correct. Actually Michael Gracz is the top loan officer with Gustan Cho Associates. Lol. Michael Gracz is the National Sales Manager of Gustan Cho Associates and in charge of all loan officers in Gustan Cho Associates Mortgage Group

  4. Dora Ali says

    What a great blog Alex! There are a lot of self employed buyers who would benefit tremendously from all the information provided. Are these guidelines the same across the country?

  5. Gustan Cho NMLS 873293 says

    Dora

    All mortgage GUIDELINES are federal agency regulations and GUIDELINES so it applies to all 50 states.

  6. Gustan Cho NMLS 873293 says

    The Gustan Cho Team at Loan Cabin Inc. NMLS 1657322, a national five star direct lender with no overlays on government and conforming loans like to welcome Dora Ali and Syed Ali to Gustan Cho Associates. Gustan Cho Associates is the national consumer direct Division of Loan Cabin Inc.. Loan Cabin Inc. is a full Eagle direct lender headed by Chief Executive Officer Massimo Ressa headquartered in Lombard Illinois. Dora Ali and Syed Ali are licensed mortgage loan originators licensed in multiple states. Syed Ali and Dora Ali is based in Houston Texas and under Michael Gracz the National Sales Manager of Gustan Cho Associates

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