Hello, my spouse and I are moving to a new state in a little over a year when he retires. I’m currently a clinical social worker (therapist) W2 employee with the same company for 4 years. I really want to branch out on my own and go 1099 independent contractor for different company. My salary won’t really change. Around $85k a year. How hard will it be to get a loan for a new home in a year?
We currently live in a $450k home paying a mortgage. Both our Credit Scores 650+. My husband makes $115k per year.
I’m wondering the same as my partner is w2 at $100k and I’ve been 1099 for 4 years. My issue is I’ve averaged $50k with my 1099 but 2023 I somehow made $113k so I wonder if I’ll get denied because if they look at recent 2 years only it looks unstable
Whit said: @Zeph
If your 2024 was also 50k yes it’s a decline of more than 20% so it’s an issue. If it’s consistent with your 2023 $113k you are golden.
Ugh, they’ll still consider it a decline even though in 2021, 2022 and 2024 I averaged $50k? I feel like 2023 was all luck lol
@Zeph
Yes unfortunately most lending isn’t common sense. Underwriting doesn’t view stellar years as just bonus income to exclude, they view declining income as something bad is happening with the business and it’s not sustainable.
Zeph said: @Whit
I was so afraid of that we can’t get a house on my partners income alone so I’ll have to figure something out
You could do a 1 year tax return on 2024 taxes or 12 month bank statement program, that wouldn’t show the decline since underwriting would only see 2024 income.
Otherwise, you could use 2023 taxes and do an extension on your 2024 taxes until after you close on the loan so underwriting only sees the larger increase on income. There are options so I wouldn’t get discouraged, just work with the right lender early so there’s time to get creative on problems.
@Whit
Oh wow didn’t even think of any of that. If I’m 1099 self employed, don’t I need to provide at least 2 years worth of tax returns? And is there a huge penalty to do an extension? Also, if I do the extension, seeing as I’m self employed/social media marketing, will they want to also see recent bank statements? Even though I’m providing my 2023 tax returns only which shows more?
@Zeph
There are hundreds of programs including ones that allow 1 year tax returns but even the standard Freddie conventional do allow 1 year tax returns as long as you have been in business for 5 years. Obviously everyone’s loan is specific to their financial situation but the real question would be if you qualify for them. My wife has a saying, just because your neighbor can wear a size zero doesn’t mean you could, should, or would and conversely what they have for a loan may not be the right loan for you. I’d always recommend having a lender review your items ahead of time, even if you aren’t looking in the next few months, just so you have a roadmap and know what to do moving forward.
I’m not a CPA but usually there isn’t a cost for an extension for your taxes unless you owe and aren’t making installment payments but even this isn’t much of a cost. There’s a reason most people do an extension on their taxes when they are self employed to managed their cash flow if they owe a large tax liability for the year.
You’ll still have to provide bank statements for proof of your assets but the taxes supersede bank statement deposits for income, meaning whatever you claimed on your taxes would be used for your income used not the actual monthly deposits (as some businesses get a huge check and have no income for months so it wouldn’t be a valid average unless it was 12 months bank statements which is another option).
@Zeph
Generally if 1099/self employment income is increasing year to year, they will take a two year average for qualifying income. Generally income increasing year over year is not an issue
Van said: @Zeph
Generally if 1099/self employment income is increasing year to year, they will take a two year average for qualifying income. Generally income increasing year over year is not an issue
it increased from 2021-2023, for some reason in 2023 I made double what I made in 2024 so I feel like I’m screwed, even though what I made in 2024 is equivalent to every year besides 2023 lol
@Zeph
They will likely condition for an explanation for the decline in income in 2024 vs 2023, I don’t believe you will have a major issue though, outside of only being able to use the 2024 income to qualify since it went down from 2023.
@Van
I wouldn’t mind if they went by the lower income, I just want them to let my income be a part of the income needed for a house. Not sure how to explain the decrease besides sales were slower. I do social media marketing. Somehow went viral in most of 2023 for commissions & clients but last year…not so much
The issue appears to be how you will make income. If you are moving to a new state, underwriting will want to see your and your husband’s book of business in that new state to support your current income levels. If your current job is remote or you travel to that new state frequently for work, this would work to satisfy this. Additionally, if you haven’t worked 1099 before you’ll need a 2 year history of 1099 income for traditional loans. There are programs that allow less but you’ll at least need to show bank statement deposits for several months on this 1099 job (using this averaged income, not your previous W2 income) and the rate will be higher (since there’s more risk to the investor as the documentation isn’t standard).
@Whit
He will make 72K per year on a govt pension. Moving to TN (no state income tax). His paycheck will virtually be the same because we are in a very high cost of living state and moving to a state with no state income tax. I also work remotely currently as a therapist (W2) and that will continue in TN (Whether I am 1099 or W2).
@Lennon
I’d recommend the same thing the previous commenters said- Keep your W2 job and get the loan, then afterwards switch to your 1099 job after closing on the loan.
