Banker helps qualify carpenter with unique income situation

Mortgage banker: Chris Bartlett

Purchase process: $295,000

Loan amount: $265,000

Loan terms: 30-year fixed 10% down conventional mortgage

Backstory: Recently, I was contacted by a local real estate agent about a buyer she was working with who was having a hard time being qualified.

For the past several years, the buyer had been working as a carpenter for a local builder. In midJune 2018, he decided to take a job with another company at a higher hourly rate. The new company, while paying more, required every employee to work on a 1099.

Because the buyer was no longer receiving a W2 and he had not been receiving a 1099 for the past two years, his income could not be considered when applying for a mortgage.

Both Federal Housing Administration and conventional mortgage financing require a person receiving a 1099 to have a two-year history filing a tax return with a schedule C. The net income, after all deductions, must be averaged over 24 months to determine a person’s qualifying income.

Because the buyer only had a one-year history of filing a 1099, he would need to wait until he filed his 2019 tax returns before he could apply for mortgage financing.

During the conversation with the agent, she mentioned several times that the buyer was making $1,400 per week every week based on his hourly rate for a 40-hour work week. I suggested having him send over his 2018 tax return and his four most recent paystubs.

Upon receiving the requested documents, I noticed that while he had received a 1099 in 2018, he filed the 1099 as if he was receiving a W2, taking only the standard deduction.

Based on his start date in June 2018, his total income was consistent with his weekly income for a 40-hour work week from his start date. Based on this information, I felt we could make the case that while he was receiving a 1099 from his employer, he was actually being paid as a W2 employee and filing his tax returns in the same manner.

For additional support, I had the buyer provide copies of every check he received in 2019 to show his weekly pay was the same every week. We submitted his application for pre-approval with all of the documentation on his income and an explanation of how he was being paid and that it was his employer that required every employee to pay on a 1099.

His application was approved based on his weekly pay for 52 weeks and the buyer was able to move forward and close on a single-family home for his family.