Is it considered fraud to hire your girlfriend as a housekeeper?

17 Replies

Okay, this may seem like a silly question, but what we're trying to do is figure out how we can get a mortgage loan to get a fourplex, but we are an unmarried couple, where one spouse is self-employed, and the other spouse stays at home with the kids (we share children). The problem is, we don't have two years of self-employment income. Even if we go the S-corp/W2 route, since the working spouse owns more than 25% of the S-corp, he will still be considered self-employed by the mortgage lenders. He cannot transfer any of the S-corp to me, because I do not have the qualifications to legally have any interest in the S-corp. Since I do not help him out with his business, I don't think he can legally hire me to "work" there either. 

However, I am wondering whether he can legally hire me to work as the "nanny" or the "housekeeper", so that I can try to qualify for a mortgage with my own "income", which would be "w2 employment" and not self-employment. We live together, and have kids, but we are not officially married, so would it be legal for him to hire me as a "live-in housekeeper"? Would this somehow be considered tax-evasion or fraud? We don't want to do anything illegal, but we're trying to look for loopholes to avoid needing the 2 years of tax returns.

@Ellie Narie

I don’t think it would be fraud if you do it as a business. Have the proper records etc.  However SE or W2 tax would have to be paid and ultimately there is no more income and possibly less with SE tax or W2. Therefore-meeting the requirements for  getting the loan would not necessarily be improved. I find it better if only one of you get the loan anyway. 

Originally posted by @Carl Fischer :

@Ellie Narie

I don’t think it would be fraud if you do it as a business. Have the proper records etc.  However SE or W2 tax would have to be paid and ultimately there is no more income and possibly less with SE tax or W2. Therefore-meeting the requirements for  getting the loan would not necessarily be improved. I find it better if only one of you get the loan anyway. 

 We have enough income to qualify for the loan, we just don't have the 2 years of tax returns, that's the only problem. However, most lenders don't require 2 years of return from regularly employed people, it's just the self-employed that need to report the 2 years. So we need to somehow get around the 2 year requirement. That's why I was wondering if he can hire me to be a "housekeeper", so that I can show banks that I have a "regular" job, that way they will only require 30 days of pay stubs from me. 

Talk to a really good mortgage lender  @Chris Mason    should be able to guide you on this one.

I agree with @Jay Hinrichs banks always want more than what you have. A good mortgage broker should be able to help. 

Originally posted by @Ellie Narie :

Okay, this may seem like a silly question, but what we're trying to do is figure out how we can get a mortgage loan to get a fourplex, but we are an unmarried couple, where one spouse is self-employed, and the other spouse stays at home with the kids (we share children). The problem is, we don't have two years of self-employment income. Even if we go the S-corp/W2 route, since the working spouse owns more than 25% of the S-corp, he will still be considered self-employed by the mortgage lenders. He cannot transfer any of the S-corp to me, because I do not have the qualifications to legally have any interest in the S-corp. Since I do not help him out with his business, I don't think he can legally hire me to "work" there either. 

However, I am wondering whether he can legally hire me to work as the "nanny" or the "housekeeper", so that I can try to qualify for a mortgage with my own "income", which would be "w2 employment" and not self-employment. We live together, and have kids, but we are not officially married, so would it be legal for him to hire me as a "live-in housekeeper"? Would this somehow be considered tax-evasion or fraud? We don't want to do anything illegal, but we're trying to look for loopholes to avoid needing the 2 years of tax returns.

I have no idea what's legal or not, but this will be treated more or less as self employment by any underwriter that doesn't want to lose their credentials. "W2" is not a magic word. :)

It's incredibly rare that getting fancy with business entities, and/or changing them around (swapping out Sch C for S corp and giving yourself inflated paychecks, for example), within 2 years of wanting a mortgage, is beneficial. 

Didn’t even read the post but this is my favorite forum title I’ve ever read lolololol

Hhhmmm... Classic situation where it help to be educated on how to locate and engage private lenders (NOT hard money) who will look at the deal rather than your personal credit.

My $0.02 ...

I think anytime someone says "I am looking for loopholes" is a good sign in itself that maybe you should pursue an alternate! 

But to answer the question about the 2 years requirement, the others have made good suggestions about seeking out mortgage brokers who can shop around and find lenders who do not have those stringent requirements. I worked overseas on a construction project for 3 years and I did not have a W-2 to submit. But through a reference, I met a mortgage broker who had dealt with my situation before and knew how to get the paperwork through.

Bottom line: call several mortgage brokers (not necessarily banks) and explain your situation and ask if they would be able to help you find the financing you need.

I don't think it would be fraud or illegal. The truth is, you will end up paying more in taxes having that income instead of passive investment income from the LLC or S corp from investments, so I am sure the IRS would be happy to take your money.

Keep in mind, when he makes you a W-2 employee, he not only has to pay FICA, medicare, and now with the new healthcare laws, there's that too.  So this would be a hefty expense just to "put you on the books".  Better make sure it's all worth it.

If you want to know if it is legal or not than this may be good question for an actually attorney, I suggest googling employment lawyers and call around.

As for alternative financing, it depends on what you plan on doing with the property.  If you plan to live in the property then you won't be able to go to a hard money lender, but you MAY still be able to find a private lender.  That has to do with regulations, most of these are high interest loans which are considered predatory lending when it comes to lending on a personal residence.

If you plan to acquire the property as an investment then hard money lenders & private lenders alike would possibly lend on it.  As long as its a solid deal and you have funds to close.  Most hard money lenders will want to see that you at least filed taxes, and if you didn't but have good reason they still may work with you.  You might have even better luck in that situation with a private lender.  Either way just be transparent with the lender.

Looking for loopholes is not the way to acquire properties.

Find a property where maybe the owner will do some owner financing. OR Have a friend or family member put up the money to purchase the house (cash) for you and now you owe your friend or family member(private lender).

YOu might need to look for the right property with the right financing instead of just the right property.

For me, it's been eye opening to read that there are banks out there that don't require 2 years of tax returns.  Even for W-2 income.  Outside of hard money lenders, I've only come across that once.  But it had an 8% interest rate and 3 points.  Not "hard money" bad, but much worse than a typical property loan through a bank.

@Jennifer T.

There are secondary, asset-based lenders who don't care about your personal financials (DTI, pay stubs, etc) and will lend solely based on cashflow. I've seen as low as 6% and 2 pts?

But this might not work for @Ellie Narie  because they'd only lend on pure investment properties and it sounds like Ellie's planning to live in one of the units?  Please correct me if I'm wrong.

Originally posted by @Nghi Le :

@Jennifer T.

There are secondary, asset-based lenders who don't care about your personal financials (DTI, pay stubs, etc) and will lend solely based on cashflow. I've seen as low as 6% and 2 pts?

But this might not work for @Ellie Narie because they'd only lend on pure investment properties and it sounds like Ellie's planning to live in one of the units?  Please correct me if I'm wrong.

Yes, I would be occupying one of the units.

What about buying a bigger property and getting a commercial loan?

You should be able to have someone manually underwrite the mortgage if his income is really high enough. 

Originally posted by @Jameson Sullivan :

What about buying a bigger property and getting a commercial loan?

 I wouldn't mind that, but I'm looking for something with a low downpayment, such as 5%.

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