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Mortgage Application: Ignore 1099 Income?

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    Mortgage Application: Ignore 1099 Income?

    Hey everyone! I have a situation that has popped up, and it is so intriguing to me that I had to run it by you for your thoughts (especially if there are any underwriters out there). Since I could ramble for pages about the entire situation, I will do my best to give you succinct facts instead.

    1. As some of you know from my other entries around this site, I was laid off from my Director of Financial Systems position last March. The company for which I was employed made some poor strategic decisions and was forced to reduce a large portion of the G&A workforce, including my position.

    2. From April through August, I ran a consulting practice, which paid the bills - quite well actually - while i searched for the ideal full-time position. I conducted my business as a 1099 contractor, as you would expect, and my wife carried our benefits through her work. I fully enjoyed managing my own practice and expect to eventually make that my primary occupation.

    3. In September, my wife's office was closed, and she was also without work, so I needed to take on a full-time (W2) position in order for us to have benefits. My work is in Florida, so we moved here when my son was done with school in December.

    4. A couple weeks ago we went under contract to purchase a house, and I just completed all of the necessary paperwork for my mortgage broker to send to the underwriter.

    Here's where it gets interesting. My broker suggested that we not submit the 1099 income for consideration, but rather just the W2's, along with a letter explaining the employment gap - why I lost the job, how I searched for jobs, when I started the new job, etc. Never shy, I asked him why he would want to take that approach. His response was "I just hate having side business questions raised. It throws monkey wrenches into everything sometimes. I dont want the UW to make you have to file 2011 tax returns before closing...I dont want them to ask if the business is still operational."

    Does this make sense to you? Is it better to demonstrate a history of work, with a noted gap in employment and income, than to show consistent income, with part of the work history dependent on consulting engagements?

    Other relevant facts:
    Credit Score - good to go, 813
    Debt - None
    Current Position Income - plenty (pmt would be about 19% of gross)
    Current Cash Savings Position - enough for 20% DP + Close Costs + EF
    Loan - 30-year conventional, nothing unusual
    I am Married, but only my name (and income) on the mortgage
    Last edited by fe2o3ez; 01-18-2012, 10:26 AM.

    #2
    I think that sounds like a good plan. He is right. Self-employment income, no matter how little, significantly complicates the loan.

    I would be concerned with the period of no employment, but if broker advises it is probably okay.

    To be fair, I do not advise lying on a loan application in any way shape or form, but I think this is totally different. Leaving out information that would make the bank happier and prove more ability to pay, but that would make the loan easier to get? Definitely worth it, in my opinion.

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      #3
      P.S. For reference, I am in the middle of the refi - with 20%+ equity, high FICO, and long work history, and this may be one of the easiest refis we have ever done. Some of the worst horror stories on these purchase/refi loans come from friends with higher income and more assets, but very small self-employed side incomes. Then the bank wants a LOT of info and can take a very long time. & that's to verify a few thousand dollars on the side though W-2 income is in the six figures - for a small mortgage loan and well over 20% equity.

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        #4
        Leave it out if you don't need the additional income to qualify. Any self-employed income will complicate the loan process and make it much more difficult to close. I speak from personal experience, so I think your broker is giving you solid advice.
        Rock climber, ultrarunner, and credit expert at Creditnet.com

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