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Independent Contractor FHA loan

I am an independent contractor and have been for over 2 years. Currently I am contracting for a position where I work 40 hours a week and get paid $X per hour.   I consistently earn a the same amount of money each week. My contract term is unlimited with no end date.  The absolute only difference between me and a regular employee is I'm issued a 1099 rather than W2.  In April it will be my sixth month in this position. I have no ownership interest in this position.  Is there any chance an underwriter would NOT consider me self employed?

I'd like to know because my income averaged over the past two years is lower than what I'm currently paid and I'd like to use my current income as the basis for my qualification.  If it makes any difference I have 700+ credit, 20%+ down payment, lots of reserves, etc.
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March 07 2012 - US
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Answers (5)

You mentioned you have only been in the 1099 position for 6 months, were you W-2 before?  There may potentially be some issue with the way your income is calculated by an underwriter.  I would highly suggest that you get a approval from a lender with UW reivew before you start looking:)  Good luck
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March 07 2012

I understand that you would like to use the income from your current contract, but unfortunately investors seem to think that since we are lending money for 30 years we should have more like a two year or two year plus income average income to look at.  If you are paid on a 1099 you are self-employed.  All lenders will use your last two years average so that means you need to do your 2011 taxes – especially if 2011 was better than 2009.   Also, don't wait on filing that tax return because most lender will require that the return was received by the IRS and that can take over 30 days.  If they can't verify the 2011 return they may want to use your 2009 and 2010 average.

And Joe is dead-on about using conventional financing and not FHA.  The only reason you may want to use FHA is if the property is too trashed to finance and you are going to use the 203(k) rehab loan.  If you are looking at this option be sure to get all the details about who can be the contractor, etc. with the lender BEFORE you start writing offers.  Most lenders won't let you be both the borrower and the contractor.  There may be exceptions and you may be able to do some of the work, but get the details up-front and don't assume anything.

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March 07 2012
Also it should be noted with that profile, you should not be looking for a FHA loan.  20% down excellent credit, conventional all the way.
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March 07 2012
Your income will most likely be averaged and furthermore any lender will want to look at tax returns to make sure there were no unreimbursed business expenses that would cause your income to be reduced. 
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March 07 2012
Self Employed, for FHA loan qualify off average of last two years schedule C.

If you want to qualify off your current income, discuss with the employer about getting hired on as W2.
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March 07 2012
 
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