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1099 Income Versus W-2 Income Mortgage Lending Guidelines

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1099 Income Versus W-2 Income Mortgage Lending Guidelines

This BLOG On 1099 Income Versus W-2 Income Mortgage Lending Guidelines Was UPDATED On March 14th, 2018

1099 Income Versus W-2 Income Mortgage Lending Guidelines

How Underwriters View 1099 Income Versus W-2 Income

  • Self employed borrowers who work as an independent contractors, or employer classifies them as 1099 employees will have a tougher time in qualifying for 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 is 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 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 a 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 mortgage
  • However, if borrower had 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

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 the 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 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
  • For example, lets 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

Going From 1099 Income Versus W-2 Income

As mentioned earlier,  it is much tougher to qualify for 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 mortgage
  • 1099 income versus W-2 income mortgage applicants will need to also provide proof that their 1099 income will likely to continue for the next three years

1099 Income Versus W-2 Income: Going From 1099 Income To W2 Income

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 pay check stubs will be required plus a 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

Bank Statement Mortgage Loans For Self Employed Borrowers

The Gustan Cho Team at Loan Cabin Inc. are direct lenders with no overlays on government and conventional loans. The Gustan Cho Team at Loan Cabin Inc. 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 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 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 The Gustan Cho Team at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

Gustan Cho

www.gustancho.com

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