What is the best lender for a 1099?

Question

Hi Bigger Pockets Network,

I am currently an independent contractor, which means that my employment status/income looks a little wonky on paper. Considering I work from home for my business this leads to what seems like a costly expense. I wanted to know what are some alternative mortgages I can qualify for as an independent contractor. I am looking to buy an investment property in Philadelphia while living in NYC and have enough savings to do so. Let me

All tips are welcome : ) Thanks!

Diana Muresan · Answer

@Jane Sosi 2/3 of my borrowers are self employed, they buy more real estate than my W2 borrowers. Anyway, back to your scenario, if you purchase an investment property your income is not as relevant, it only needs to cover your current expenses, we use the net rent on your purchase and we added to your monthly income. Btw, if you are self employed for at least 5 years, only 1 y of tax returns is required. Ah, also, line 30 from Sch C, which is Use of Home as business is actually added to your income, hope that helps

Account Closed · Answer

Hi Diana, is this true if you have been self employed for multiple businesses or it is true if you have been self employed from different businesses over the course of the past 5 years?

Thank you,

Kristen

Chris Mason · Answer

Freddie Mac: The business the qualifying income calculation is derived from must be >5 years old. Algorithmic and you know the algorithm.

Fannie Mae: With good credit etc, often times 2 years does the trick to get a 1 year calculation of income. But it's up to the "automated underwriting system" (AUS) software, and this isn't a publicly disclosed algorithm. I'd say it's a "yes" about 70% of the time as of the most current FNMA AUS version, again assuming good credit. (And, yes, you have to do a full application to be able to run the AUS and, no the AUS unfortunately doesn't care about your credit karma or discover card statement)

<2 years self employed (the business the income calculation is to be derived from) will be a "no" for both.

Funny thing about "the business the income calculation is derived from." They go off of tax forms. But tax forms do not necessarily specify that ABC Ventures Inc used to (mid-2018 and before) sell dog widgets to dog owners and now (mid-2018 to present) it sells lawyer fobbits to HR departments of law firms. So it can often "look" like the same business even if it's a completely new business for all intents and purposes (dog widgets v human resources fobbits).

You also see the other way -- someone shuts down ABC Ventures Inc, and forms two new entities: XYZ Enterprise LLC and ABC LP. Starts to look like two new businesses that are both less than 2 years old.... and maybe in this cases both firms continue to sell dog widgets, meaning it's "really" the same business, but on paper it is two new ones each <2 years old.

Stephanie P. · Answer

Hey Jane,

Not sure if you found money yet, but you need a portfolio lender with a no income verification loan.

Best

Stephanie

Yuriy Skripnichenko · Answer

@Jane Sosi

I have never had a W2 and still was able to get financing for investment properties.

As @Diana Muresan mentioned, you do not need much when buying investment property as long as the property's income can cover all the expenses.

I think it would be a good start for you to reach out to any lender and talk to them about your options. Also they do not have to be in Philly. You can use you local NY bank or CU or any other financial institution. Most of them lend nationwide or at lease in tri-state area.

Cheers,

Yuriy

Jane Sosi · Answer

Hi Jason!

Thank you for your response. What I  mean by "a little wonky" is that it looks like I don't make that much on paper due to what I have to claim for work / expenses. I am wondering if there are certain types of loans that are non-traditional.

Jason Lee · Answer

It depends on what you mean by a "little wonky." About half of my buyer clients are 1099 and most don't have issues going to the major retail banks. I would start there and then try some mortgage brokers who can shop around for you. DM me if you'd like strong referrals that can walk you through all your options.

Raul R. · Answer

@Jane Sosi

Your best bet could be to partner up w someone that has a W2 job w good credit

What is the best lender for a 1099?

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