1099 Income Makes You Self-Employed

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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