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Old 06-11-2013, 04:54 AM
 
3 posts, read 3,000 times
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I am a project manager in construction and have been for the past 5 years. I am 25. My mid credit score is 650. I have $21k in a asset acnt and have a little over $20k in my check acnt. In 2011 I made $50k, 2012 $60k, and this year I will pass $80K. My returns for 11 and 12 were both w-2's. In January 2013 my father offered me a position working for his construction company as a project manager but as an independent contractor. I understand that this converts me from w-2 to 1099. I have a contract with the company stating that I make $35 per hour, that I am paid bi-monthly, and that Im guaranteed a min of 50 hrs per week. I have scanned every check that I have received and stored them in a folder on my computer to show a steady income. I do not own any part of the company and I have no write offs. I signed a contract with Lennar and UAMC a month ago to build a home for $225K. They approved me for a FHA loan and I signed the contract based on the info I provided on the app and my credit score. I have not been asked to provide any documentation but Ive realized that in my app that under "Employer" I put my fathers company. I have snapped to that I am not employed by the company. Im an independent contractor. I am worried that once I am asked to provide documentation that the copies of my checks will not pass as a paystub, that UAMC will not approve me in underwriting bc I am now 1099 instead of w-2, and that I do not have 2 years of 1099 returns. Any chance that my contract with Lennar will be terminated? Or could things possibly continue?
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Old 06-11-2013, 06:56 AM
 
617 posts, read 1,160,567 times
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As a 1099 employee they will always require much more documentation. It may not get terminated but your approval process just got more stringent.
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Old 06-11-2013, 07:22 AM
 
3,130 posts, read 1,440,781 times
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Quote:
Originally Posted by ama06 View Post
I am a project manager in construction and have been for the past 5 years. I am 25. My mid credit score is 650. I have $21k in a asset acnt and have a little over $20k in my check acnt. In 2011 I made $50k, 2012 $60k, and this year I will pass $80K. My returns for 11 and 12 were both w-2's. In January 2013 my father offered me a position working for his construction company as a project manager but as an independent contractor. I understand that this converts me from w-2 to 1099. I have a contract with the company stating that I make $35 per hour, that I am paid bi-monthly, and that Im guaranteed a min of 50 hrs per week. I have scanned every check that I have received and stored them in a folder on my computer to show a steady income. I do not own any part of the company and I have no write offs. I signed a contract with Lennar and UAMC a month ago to build a home for $225K. They approved me for a FHA loan and I signed the contract based on the info I provided on the app and my credit score. I have not been asked to provide any documentation but Ive realized that in my app that under "Employer" I put my fathers company. I have snapped to that I am not employed by the company. Im an independent contractor. I am worried that once I am asked to provide documentation that the copies of my checks will not pass as a paystub, that UAMC will not approve me in underwriting bc I am now 1099 instead of w-2, and that I do not have 2 years of 1099 returns. Any chance that my contract with Lennar will be terminated? Or could things possibly continue?
It shouldn't make a difference. I'm also 25 and a 1099 and have had no issues getting loans.

It shouldn't make any difference where your money has came from the last 2 years as long as you can provide proof if necessary that you have been employed that whole period (regardless by who). Whether you worked as a 1099 for your father or on a different job doing something else.

Do you know a lot about 1099 work? You do realize you will get penalized (aka fined) if you don't start making quarterly payments for your income tax. If you don't have any dependents or a ton of write offs, I would plan on saving 35% of every single pay check to put towards your taxes. Every paycheck I immediately transfer 35% to a separate savings account that is only used for taxes.
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Old 06-11-2013, 10:02 AM
 
78 posts, read 71,956 times
Reputation: 101
The 1099 situation is trickier than a W-2. I'd be more concernced about over spending in the house itself. I think a $225k house is too much considering your age, your income, your credit score (650 won't get you a great mortgage rate), and once you pay the down payment and closing costs your savings will be pretty much depleted (what if you encounter an emergency?).

I'd wait a couple more years to build up more savings, improve your credit score, and let the 1099 situation play out.

I second Houston-Dan's warning about taxes as a 1099 contractor...get advice from a tax professional.

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Old 06-11-2013, 10:12 AM
 
Location: Berkeley in Denver, CO USA
6,861 posts, read 5,764,854 times
Reputation: 6926
Default I am not a lawyer

Quote:
In January 2013 my father offered me a position working...that I'm guaranteed a min of 50 hrs per week.
I am pretty sure that what your father has done is illegal.
You need to talk to a labor law lawyer.
There are rules about 1099.
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Old 06-11-2013, 10:23 AM
 
Location: Scottsdale, AZ
1,428 posts, read 1,751,349 times
Reputation: 1497
You have got to let the lender know that you have made this change. It may not affect your qualifying, they will likely ask you for additional information. You do not want to wait until just before closing to spring it on them. Especially if you are giving the builder deposits that could be at risk.
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Old 06-11-2013, 10:44 AM
 
1,539 posts, read 1,441,023 times
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Quote:
Originally Posted by davebarnes View Post
I am pretty sure that what your father has done is illegal.
You need to talk to a labor law lawyer.
There are rules about 1099.
Why, because 50 guaranteed hours a week means that the father would have to offer the son benefits? Just curious.
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Old 06-11-2013, 11:27 AM
 
Location: Two years in Raleigh, NC
6,026 posts, read 5,616,300 times
Reputation: 7547
I'm also questioning whether you are really a 1099 independent contractor or are actually an employee. Here's a good guideline that you and your father should read:

IRS Independent Contractor Test

Houston-dan is incorrect - this WILL be a problem with your mortgage. Primarily because you do not have 2 years of tax returns as a 'self-employed person.' And getting a 1099 form is the same thing as an independent contractor is the same thing as self employed. Be prepared to be turned down for the mortgage unless you are able to switch back to W-2.

Houston-dan gave you some GREAT information about paying quarterly taxes. Spend some time reading about it and DO IT. And remember, you'll have to be paying another 7.5% above what you used to pay for the self-employment tax portion of Social Security/Medicare. You also will not have any unemployment benefits, paid vacation, paid days off, employer provided medical insurance, etc. Get your own medical insurance AND long term disability insurance.
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Old 06-11-2013, 11:33 AM
 
Location: Berkeley in Denver, CO USA
6,861 posts, read 5,764,854 times
Reputation: 6926
Default Ianal

Quote:
Originally Posted by blazerj View Post
Why, because 50 guaranteed hours a week means that the father would have to offer the son benefits? Just curious.
1099 Contractor vs. W-2 Employee: A Decision Guide | Intuit Small Business Blog
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Old 06-11-2013, 12:44 PM
 
Location: Houston, TX (Oak Forest)
3,562 posts, read 7,338,601 times
Reputation: 2346
I've been on 1099 most of my life and as I recall the rule is that you need 2 years of tax returns on the 1099 to get a mortgage approval. Also the way they calculate your income is I believe more stringent when you are on a 1099 but I'm sure some of that depends on the lender. For example I was told that on a 1099 if your income is rising they will average your last 3 years but if it is falling they take your worst year and use that to qualify the loan.
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