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Pre-approval Denial: Self Employment (Vent)
Just need to vent a little here. I've been looking at houses over the past 6 months to educate myself on the market. I feel like I'm well educated and ready, so I completed my pre-approval this week. I am technically self employed (as a 1099 contractor) and knew that would require some extra paperwork for approval, however I never thought this would be a deal breaker. I've had steady employment throughout college, graduate school, and after. While I only graduated from grad school 9 months ago, I've worked hard to get a great job with a high income, save 20% for a downpayment, and keep impeccable credit.
Long story short, I ended up being denied because I have only been "self employed" since September 2011; turns out I must have 1-2 years of self-employment experience to be approved. It's such a blow, and is so frustrating. While I knew it would be an obstacle I'd have to overcome, I never thought it would be a total deal breaker. I've been considering moving to a W2 position, and guess this may increase the urgency here. It's just very frustrating. I'm single, so this is the only house hold income at this time.
Does anyone have experience getting approved for a loan with a 1099? Any suggestions for what to do? I'd greatly appreciate any advice you ladies can offer. Thank you!
Re: Pre-approval Denial: Self Employment (Vent)
You may also need to show a particular length of time at a W-2 position. So just take that into consideration.
And it's not a deal breaker, as you say. They're not saying you'll never be approved as a self employed person. But they need to see that you are making a certain amount of money consistently, and that you didn't just have 2 awesome months and then you'll make nothing.
Ditto PP - you'll probably have the same issue if you switch to a W-2 job now. They need to see sufficient stable history with any income.
I'm sure it's frustrating in your position, because you feel like you've done the right thing, have savings, and are now stable. However, these rules have changed for good reason. I think it's best for the market if buyers have to prove 1+ years of stable job history before lenders hand out hundreds of thousands of dollars.
Just hang in there. 5 years from now, when you have been in your new house for quite some time, you'll never think about the extra 6 months you had to wait.
We had that issue with our last home. I work from home, so my company transferred me from W2 to 1099 in April. We went under contract in May, and in June found out that my income no longer counted. Fortunately, DH was able to qualify without me, but otherwise I'd have just been up a creek for 2 years.
Honestly, since you've been 1099 since September and they said that you need to be 1+ year, I'd just wait until September or October and try again. You're not really losing much by waiting an additional 6 months. Additionally, if you go W2, since you're the only income, they may require several months of stability before they qualify you. So might as well do what you like. Continue saving up and before you know it, you'll have way more down payment, which will also work in your favor when you're putting in a contract.
If you really want to buy now, perhaps you could try contacting some other banks and let them know the basics of your situation to see if any of them could work with you. Good luck!
Since you have only been 1099 for a few months, its not likely that your income was very high on your 2011 tax returns. Also, all tax returns need to be validated with the IRS, even if you are not self employed. When you sign your disclosures, there is going to be a form 4506t that is sent to the IRS. The IRS provides tax transcripts so that your lender can look at your returns vs. what you actually filed to the IRS. There can NOT be any discrepancy. Even if you did file your returns, the transcripts will not be available until April or early May. So your lender really has no way to weigh what you provided with what was actually given to the IRS.
Also, look at your schedule C. Look at your bottom line, line 31. This is what your lender considers that you actually made, and how your income will be calculated. Add your depreciation to that total. Subtract out your meals and entertainment. Go to the next page, and you can add in mileage @ .22/mile. This is what the underwriter considers you made.
If you have other questions, let me know - I am a processor
We were not pre-approved (were not even seriously looking when we found our house!), When we found it we contacted a morgage broker and asked her if we should try and get pre-approval or just ask lenders for loans as buying the house. She said that because we had more then 20% to put down, that there shouldnt be any problems by not being pre-approved. We were in a similar situation with work history being an issue, she said that she would try anyways and there were 2 lenders who were willing to take us on since FI's salarly now is decent and the home is suitable (the lenders assuming we can get additional income if a crisis hits), we also got his parents to co-sign, since they have a lot more 'stability' careerwise, so they legally own 1% of our property for one year, and as long we we dont falter on payments in that one year they will be removed.
Thats all to say, pre-approval, while beneficial, is not necissary, a good morgage broker with lots of connections, can get around it.
My Blog:Through My Eyes
Hi Ladies, thank you so much for the support and encouragement - I'm continually amazed by the great advice that is out there on this board. I spoke with the LO at my credit union (where I was denied) as well as one at Wells Fargo. It looks like if I do move to a W2 I should be approved immediate. I'm hoping that's the case (though they also thought I wouldn't have a problem with the 1099 to start with). Apparently 1099 income has to be spread over 12 months so my 3 months of salary doesn't amount to much when it's spread out over 12.
I realize that 6 months isn't that long when looking at 30+ years, but I'm really hoping to take advantage of the great rates. As one of you suggested I will look into a loan broker and see if they know any banks that can work with it, as well as look into alternative ways to structure the loan.
Thanks and have a great weekend!
i've been on a 1099 or through my own s corp for the last 9 years. for many reasons including that, we're doing our mortgage in my h's name only.
yes, get a good broker. ours was great at determining the best and fastest loan/lender for us.
lastly, rates aren't going up any time soon. the fed has promised to keep rates low until 2013. and even then, i doubt they'll shoot up super fast, so you'll still get a historically low-ish rate.