These days there are lots of misconceptions about how hard it is to get a loan to buy a house in Colorado Springs. But not all of rumors are UNtrue either. Yesterday we got burned by an issue that has hurt many a loan before – what will a lender consider as income.
It is commonly known that self employed borrowers have the toughest time getting a loan, because after all, small businesses are sometimes risky, and subject to lots of ups and downs. But some employees are being treated as if they were self employed these days, and that is where the ‘sucker punch’ comes from.
The test that the lenders use is simple. Is your income reported on a 1099, or is it on a W-2? If you get a W-2 that documents your income, congratulations, you win major bonus points for the It’s Easy To Get a Loan game. Assuming your credit scores are good, you don’t have a lot of debt, and the income that is documented is sufficient, you are a likely winner. But no matter how good your credit score, how high your income, how low your debt, if you are a 1099 person, you need 2 years of tax returns from the ‘business’ you are deriving your livelihood from before they will consider it real. Even if it is guaranteed by contract. Even if it is in a field of expertise you’ve been in for a long time. No exceptions. This can really hurt someone who is in any number of fields where in fact the employer simply does it that way to avoid some payroll taxes and insurance, like some truckers, some construction workers, some technology workers, etc.
What is the answer? In general, it is best to qualify and purchase before setting out in a new direction, even if it means taking a little less pay for a while in exchange for the security of the W-2. Once you have the house, it is far easier to make major changes in your compensation structure or even line of work. Otherwise, a co-signer is likely your only fall back. If you are considering going to work in a 1099 environment that should really be a W-2 (there are surprisingly many of these), consider negotiating a slightly altered deal, where the employer can recover some of the payroll processing costs in exchange for you getting paid with a “real” paycheck. It might make the difference between owning a home or not.
© 2009, Rick Van Wieren Real Estate, Inc. All Rights Reserved. On republishing this post you must provide link to original post.