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FHA loan guidelines for going from W2 to 1099 Wage Earner
I have been in my same job for 4 years but was recently converted into a 1099 wage earner from W2. Can I still qualify for FHA loans?
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1 Reply
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There are certain restrictions to keep in mind. Nevertheless, even if you are a W2 employee during the application process or a 1099 employee at loan approval, you are still able to apply for an FHA home loan:
FHA Loan Key Considerations:
Income Stability:
- Most lenders prefer candidates with employment histories of at least two years at their current position.
- Having been in your particular job for four years is a plus.
- That is in your favor.
- They will also look for stability in your 1099 income.
- This has helped smooth earnings for the last few years.
Documentation Required:
Tax Returns:
- Two years of personal tax returns will likely be needed to verify the income.
Profit and Loss Statements:
- In the case of self-employment or freelancing, year-to-day profit and loss statements may be required.
Bank Statements: Verify your income and other sources of funds that may be used.
Debt-to-Income Ratio:
- Ensure your debt-to-income (DTI) ratio is within the limits set forth by the FHA rules and regulations (usually does not exceed 43% for most borrowers, but some lenders may approve higher ratios with some compensating factors).
Credit Score:
FHA Loans require qualifying credit scores of at least 580 for a maximum loan-to-value of 96.5%. Scores between 500 and 579 will qualify with a ten percent down payment.
Down Payment:
- Although documentary credits are more desirable, most borrowers generally obtain microfinancing to purchase flats or homes.
- If your credit score is over 580, the FHA loans will accept a down payment of 3.5 percent.
- Be ready to extend this.
Lender Requirements:
- Requirements may vary from one lender to the other.
- Thus, it is wise to explore options that would be favorable for self-employed clients.
- Although earning a 1099 wage may involve more work, you do not have to worry about how hard it is to get an FHA loan.
- Remember the necessary documentation.
- Contact a mortgage broker who will guide you through everything.