Can I get a loan if on maternity leave?

Question

So, I just opened up a company and left my 1099 employment and can't seem to find a bank that will give me a loan since my LLC is less than two years old. My main client is my former employer, and I thought that would help, but apparently not.

My wife and I bought our last property using her 1099 income, but now she is on maternity leave for a few months. I have a property in mind that has great cash flow, but I was told she can't use her income to qualify for a loan since she is on 'temporary leave' even though we have 25% for a down payment. Are others seeing the same issue? Maternity leave falls under FLMA so her employment is guaranteed, but she won't be able to show income for a few months.

Does this preclude us from buying more properties at this point until she is back or does someone have a strategy or experience with this sort of thing? I could look to do a commercial loan, but we'd rather not- it is just a duplex. Or I could look to do a 5+ unit property or a commercial property, which is what I want to do in the next few years, but I really like this property that I'm considering now.

Thanks!

Randy Born · Answer

Chris MasonSorry- I got that wrong- yes, I left my w2 employment and now am 1099. My wife still is a w2 employee, but is on maternity leave. Sorry for the confusion.

But, for conventional loans, I am told that since she is on 'temporary leave' they cannot offer me a pre-approval letter until she gets back to work in a few months.

Chris Mason · Answer

Oh, the wife is w2? OK, that's BS discrimination. Go interview lenders until you find one that says "yes." This can be done as a plain boring vanilla 30 year fixed fannie mae. It's not 1950 any more where we assume that a woman will never go back to work once she has a kid; her employer just has to confirm in writing that they follow the law and thus there is a job waiting for her.

Chris Mason · Answer

I was hoping she was a W2 employee, and was going to type a good news email.

1099 people are independent contractors, not employees, unfortunately. The IRS website is crystal clear on that, and there is no exception for "but my employer is breaking the law by calling me 1099." Repeat after me: "on paper, my wife is not an employee and does not have an employer, ergo by definition there is no one that can guarantee her future/continued employment because there is no employer."

I do have some good news, however. Don't walk into lender offices and focus on wife's income. Walk in and focus on rental income from the property you are looking at. I do not have your full loan application, but it's possible that the rent from the property that "has great cash flow" will solve this problem, assuming your go-to lender is investor friendly and has an IQ greater than a banana. If your go-to realtor is investor friendly, she should have a go-to lender that is investor friendly.