1099 Income Versus W-2 Income Mortgage Lending Guidelines
This Article Is About 1099 Income Versus W-2 Income Mortgage Lending Guidelines
How Underwriters View 1099 Income Versus W-2 Income:
- More scrutiny is placed on 1099 wage earners than W-2 income earners
- 1099 wage earners often benefit from being able to write off substantial unreimbursed business expenses
- Having substantial unreimbursed business expenses will benefit 1099 wage earners in paying less taxes
- However, large unreimbursed business expenses will lower adjusted gross income
- Adjusted gross income is what lenders use for qualified income
- Having a lot of tax deductions and lower adjusted gross income will hurt qualifying for a mortgage
- Self-employed borrowers who work as an independent contractor or employer classifies them as 1099 employees will have a tougher time in qualifying for a mortgage than being a W-2 wage earner if they take a lot of tax deductions
- Mortgage Guidelines require two years 1099 income and tax returns for self-employed borrowers
The two year income average needs to be either the same and/or increasing. Declining income in the most present year may disqualify 1099 wage earners altogether in qualifying for a mortgage.
Case Scenario On How 1099 Versus W-2 Mortgage Guidelines Work
For example, here are case scenarios:
- If a borrower is showing good 1099 income for the past six months and had a W-2 paying job prior to that the chances are they will not qualify for a mortgage
- This is due to the two-year mandatory requirement to provide 1099 income
- 1099 wage earners need two years seasoning as being 1099 wage earners in order to qualify for a mortgage
- On the flip side, if you are a W-2 employee and have been a W-2 employee for the past 30 days, you can qualify for a mortgage
- You need to provide the offer letter of employment
- You need to provide 30 days paycheck stubs and verification of employment of your new employer
- You could have been a 1099 income wage earner prior to getting a new W-2 job and still qualify for a mortgage
- So, if you were a 1099 wage earner but recently got a new W-2 job, WILL you qualify for a mortgage
- You can have a gap of employment of less than six months and there is no waiting period after getting a new job to qualify for a mortgage
- However, if you had a period of unemployment of 6 months or longer, you will need to be on your new job for at least six months to qualify for a mortgage
Any periods of unemployment of six months or shorter, only a 30-day paycheck stub will be required prior to underwriter issuing a clear to close.
Cases Where Only One Year 1099 Income Is Required On Conventional Loans
Fannie Mae will always require two years of 1099 income per DU FINDINGS to be eligible for an automated approval via Fannie Mae’s Automated Underwriting System.
- However, Freddie Mac will accept only one-year 1099 per LP FINDINGS via Freddie Mac’s Automated Underwriting System if the applicant is a strong borrower
By a strong borrower, the mortgage applicant needs to show the following:
- strong income
- history of self-employment for many years
- larger down payment
- plenty of reserves
- multiple aged credit tradelines
- other compensating factors
Income Case Scenario
For example, let’s take a case scenario:
- Mortgage applicant who is a 1099 employee and has a 740 plus credit score
- 20% down payment
- 5 credit tradelines
- $30,000 plus of reserves
- This mortgage applicant will most likely get an approve eligible per LP FINDINGS with only one-year 1099 income
One year tax returns required whereas a mortgage applicant with a 620 credit score, 5% down payment, 1 credit tradeline, and no reserves will most likely not get a one-year 1099 and/or tax return approval.
Going From 1099 Income Versus W-2 Income
As mentioned earlier, it is much tougher to qualify for a mortgage for 1099 income versus W-2 income.
- The difference between a 1099 income versus W-2 income earner is that a 1099 income earner will be required two years 1099 income history in order to qualify for a mortgage
1099 income versus W-2 income mortgage applicants will need to also provide proof that their 1099 income will likely continue for the next three years.
1099 Income Versus W-2 Income: Going From 1099 Income To W2 Income
Borrowers working as a 1099 wage earner but have changed to W-2 income earner, only 30 days of paycheck stubs will be required plus verification of employment.
- As long as you did not have more than a six-month gap in employment and have changed jobs from a 1099 wage income earner to a W-2 wage income earner, only 30 days of paycheck stubs will be required
Bank Statement Mortgage Loans For Self Employed Borrowers
Gustan Cho Associates is a five-star national lender with no overlays on government and conventional loans. Gustan Cho Associates are correspondent lenders on non-QM loans and bank statement loans for self employed borrowers.
No tax returns are required. We go by averaging the past 24 months of bank statement deposits.
- Either personal or business bank statements can be used
- Needs to be one bank account
- Multiple bank accounts do not work
- If using personal bank statement deposits, 100% of deposits can be used
- If using business bank statement deposits, 50% of deposits are used. 20% down payment with minimum credit scores of 20% down payment on a home purchase
- 15% down payment requires 680 credit scores
- 10% down payment requires borrowers to have 720 credit scores
- Up to 50% debt to income ratios
Home Buyers who need to qualify for a mortgage with a national mortgage company licensed in multiple states with no overlays on FHA, VA, USDA, or Conventional Loans, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates are experts in Non-QM loans. We are experts in helping borrowers qualify for a mortgage one day out of bankruptcy and foreclosure with our non-QM loan program. We offer 12-month bank statement mortgage loan program for self-employed borrowers with no income tax returns required. There are no maximum loan limits on non-QM loans. Private mortgage insurance is not required on Non-QM loans.