Self-employed but switched to W2 ... (home loan, income tax, approved, credit)

[Isle_Gal]

So we found a house and have a contract and our initial meeting with the lender went perfectly fine, our credit/debt are fine ... we can afford the house we want, etc. But there is just one thing that I didn't ask that has been bugging me ... it was briefly mentioned when we talked with the lender, but not given much attention.

Knowing very little about the terminology etc of home loans basically my understanding is that it is virtually impossible (at our income level anyway) to get approved for a loan being considered as a "self-employed" contractor. The lender requires 2 years of tax forms, income proof etc. Here is the question:

My husband and I were both considered for tax purposes as self-employed for most of 2010 - when we learned this would prevent us from getting a loan we had our employers switch us to W2. I believe that happened in October or November 2010. So only the last 2 or 3 months of 2010 was "W2" ... so we do have W2s for 2010, but only for a small window of time.

Then we went all of 2011 as W2 employees for the same companies, where we still work and where we are still W2.

Should I be worried about 2010? I don't want to bother the lender about this unnecessarily.

[PureHapa]

Have you filled out your loan application yet? The lender will let you know if this is a problem. If you haven't filled out the app and want to put your mind at ease, go ahead and discuss it further with the lender. It's not a bother to the lender - they have to deal with all kinds of situations. And it's better to find out about any issues now.

[VictorBurek]

First of all, there is nothing that prevents a self employed person from getting a mortgage.

Switching from self employed to W2 will create no problems...if it was the other way around, going from w2 to self employed, that would be an issue.

[bradiecloud9]

My husband and I are both self employed and we were told we could not get a mortgage without a W2. My husband does receive a 1099 for some independent freelance work, yet we were told that is not enough to get a mortgage. We are feeling discouraged and are unsure what our next step should be for getting a mortgage loan?

[willow wind]

Of course you can get a loan if you are self employed. Happens all the time. You just have to prove your income for at least two years and much longer is even better. The qualifying is tougher but absolutely no reason it can't be done.

Now if you have totally screwed up your life by working under the table, or by playing with your tax return so that a $ 90,000 income gets reported to the IRS as $ 25,000, then you have a problem.

Go speak to a couple more loan officers. Find one who can explain to you what you need to do to qualify for a loan.

[SmartMoney]

Isle_Gal, you are fine. Don't give this aspect of buying another thought.

bradiecloud9 - if you can't show the income to make the payment, you don't want the loan. In a nutshell, what is going on (this is a guess), you are writing off so much of your income to avoid paying income taxes, there's nothing left to show how you will make your mortgage payment. A scenario like that makes it impossible for a loan officer to make an argument for your loan.