Can self-employed without two years of income qualify for FHA?

6 Replies

Let's say the individual just graduated from professional school, and started their own practice/business. They are a contractor and receive a 1099 form. Do they have to wait two years before being able to qualify for FHA?

There are ways to turn your 1099 income into W2 income.  It well take a level of signification which is a conversation for your attorney, CPA, and yourself to have jointly. The basic Ideal is you will make an S-corp.  Then expense all the S-corps income out to avoid/limit double taxation.   One of the biggest expense of any business is payroll, of which you will be the only employee.  This gives you w2 income and lenders will not think twice about it.   

There are some draw backs. S-corps are more time consuming to maintain than a LLC. But you should only need it for a few years. Later you may not need the S-corp at all.

I though about doing just this.  But now lenders i work with are happy with my financial statements.

Originally posted by @Wilson Lee :

There are ways to turn your 1099 income into W2 income.  It well take a level of signification which is a conversation for your attorney, CPA, and yourself to have jointly. The basic Ideal is you will make an S-corp.  Then expense all the S-corps income out to avoid/limit double taxation.   One of the biggest expense of any business is payroll, of which you will be the only employee.  This gives you w2 income and lenders will not think twice about it.   

There are some draw backs. S-corps are more time consuming to maintain than a LLC. But you should only need it for a few years. Later you may not need the S-corp at all.

I though about doing just this.  But now lenders i work with are happy with my financial statements.

I believe that the deadline to file as an S-corp has passed, so 2017 taxes have to be filed as an LLC. That would mean that it would take an additional year before qualifying for the loan.

Is the only option to wait it out? I was also researching about getting a co-signer, but I was really hoping to just get a loan without a co-signer. 

Well, in 2017 you where a 1099 contractor, but you JUST NOW got a new job with a company who is giving you pay check stubs and are now a W2 employee! congrats! Your new job is with the S-corp you just formed.

A few months as an employee should do the trick.  You can even get a letter from your new employer verifying that your employment will continue.

Originally posted by @Wilson Lee :

Well, in 2017 you where a 1099 contractor, but you JUST NOW got a new job with a company who is giving you pay check stubs and are now a W2 employee! congrats! Your new job is with the S-corp you just formed.

A few months as an employee should do the trick.  You can even get a letter from your new employer verifying that your employment will continue.

 Ah, I see! Interesting, I will have to look into it. 

Originally posted by @Wilson Lee :

Well, in 2017 you where a 1099 contractor, but you JUST NOW got a new job with a company who is giving you pay check stubs and are now a W2 employee! congrats! Your new job is with the S-corp you just formed.

A few months as an employee should do the trick.  You can even get a letter from your new employer verifying that your employment will continue.

 I researched a bit about this. Won't the mortgage lenders know that you own more than 25% of the S-corp, in which case they would still consider it self-employment? 

@Ellie Narie I wonder too , but also wonder if they care considering they sell the loans off . Guess it depends how many boxes they have to check .

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