This BLOG On 1099 Income Versus W-2 Income Mortgage Lending Guidelines Was UPDATED And PUBLISHED On December 30th, 2019
How Underwriters View 1099 Income Versus W-2 Income
- 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
- Mortgage Guidelines require two years 1099 income and tax returns for self-employed borrowers
For example, here are case scenarios:
- If borrowers are showing good 1099 income for the past six months
- had a W-2 paying job prior to that
- the chances are they will not qualify for a mortgage due to the two-year mandatory requirement to provide 1099 income
- On the flip side, if borrowers are a W-2 employee
- have been a W-2 employee for the past 30 days
- if they can provide 30 days paycheck stubs and verification of employment
- but have been a 1099 income wage earner on their prior job
- With a new W-2 job, they WILL qualify for a mortgage
- However, if the borrower had a period of unemployment of 6 months or longer, they will need six months work of work history on their new full-time job
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 direct lender with no overlays on FHA, VA, USDA, or Conventional Loans or non-QM and bank statement loans for self-employed borrowers, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.