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HOME LOAN FOR BORROWERS GOING FROM W2 TO 1099
I have been in the same line of work for 25 years but went from W2 to 1099 in August of last year, and my husband is always W2 as he has been a teacher for 20 years. Can we use our combined income? We will have 3.5-5% down and are currently working to pay our credit card debt to below 30%.
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1 Reply
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Even though you recently turned from W2 to 1099 income, you can apply for a mortgage by including joint incomes. Here is how everyone can benefit from it and what reasons they need to keep in mind:
Applying For A Mortgage With Joint Incomes
W2 Income: Lenders should be fine with your husband’s reliable W2 income as a school teacher.
1099 Income: Considering a changeover to 1099, lenders require a minimum of two years’ self-employment income to provide a dependable income source. However, you have worked in the same field for 25 years, so that should benefit your application.
Documentation: Make sure to have the following documents ready:
A consolidated tax return for the last 2 years includes 1099 income.
Self-employed earnings are profit and loss statements (in case you don’t have two years of 1099 income).
Bank statements demonstrating regular deposits.
The Amount Paid At The Signing Of Documents
3.5%-5% Down Payment: FHA and conventional loans have a very lenient requirement regarding down payment. The minimum deposit required for individuals with a credit score of over 580 to get an FHA loan is at least 3.5%. With conventional loans, 5% is often acceptable, although there may be additional credit regulations you will need to satisfy.
Debt-to-Income (DTI) Ratio
Managing Credit Card Debt: You should lower your credit card debts to less than 30% of your credit limit. This will enhance your credit rating and DTI ratio, thereby improving your chances of being lent money.
Measuring the DTI Ratio: Most lenders view 43% as a good declination level. However, other lenders may also lend money up to higher ratios, providing one or more compensating factors. Ensure you include both W2 and 1099 and all the required and existing loans in your calculations of DTI.
Making Your Application
Credit Score: Remember to work on your two credit scores as well since they will determine your mortgage’s interest rates and chances of approval.
Talk to Loan Providers: Discuss with mortgage lenders who are well aware of the processes involving self-employed individuals since they can assist you on how to declare your income and what evidence you will provide.
Do Prior Approval: If you are preapproved, you will be more informed about how much money you can use, and your negotiating ability will be enhanced when making bids for a house.
Possible Obstacles
Lack of Two-Year History: Less than 2 years of 1099 income could make things easier. Lenders may also consider W2 income that an individual got in the past, but be ready to state why you had to change it.
Income Variability: It is reasonable to assume that lenders will evaluate the stability of income obtained through the 1099 form and how much it fluctuates. Thus, it would be ideal to have a regular stream of earnings that can be adequately backed up with documentation.
Your earnings together, adequate deposit amount, and resourcefulness in repaying the credit card debt make it likely that you will qualify for a mortgage loan. So make sure you gather the right documents and speak to the right lenders about the particular details of your case. Good luck with your home buying!