Any 1099 employees struggle getting financing?

Question

Hey ya'll,

So I recently got a job that's going to be paying 100% commission after my training is over. I've read a bit on how its harder to obtain financing as a 1099 employee vs a W2 and how lenders typically want to see at least 2 years of earnings before they consider lending you out a loan. Are there any 100% commission based people here on bigger pockets that may care to share there experience with trying to go the conventional lending route while being 1099? Because I just started this job I don't want to have to wait 2 years before I'm eligible to aquire a conventional loan. I'm thinking I may have to be more creative with my financing if I want to invest by the end of this year.

Thanks Everyone!

Andrew Postell · Answer

@Daniel Callahan speaking from a lending perspective there are loan types out there that can help you.  It is true that a greater number of loans will open up to you if you have 2 years of work history but there are other loan types out there that might be available to you - but they won't be conforming, conventional lending.  Conforming loans are governed by Fannie Mae and Freddie Mac (if you recognize those names) and since those are Government Sponsored Agencies they want to see government tax returns to qualify you.  Their rule for commission income is to have 2 years of it so they can average it to calculate your qualifying income.   Again, lots of other loans that will base their decisions on other things though.   Now, as one of the previous posts mentioned, you need something going for you for the lender to like it.  Either having a bunch of money in the bank or maybe a good property.  So a hard money lender will base their approval on the property mostly, and you some.  A smaller bank that does a portfolio type of loan, will based it more on your assets.  Granted either of those loans will carry a higher rate, or maybe an adjustable rate, or maybe only a 15 year loan (which will make your payment higher).  So the conventional loan will have better terms...but the drawback is that you need 2 years.  So there is a pro and con to everything I guess.  Feel free to tag me if you have any more questions on this.  Thanks!

Account Closed · Answer

Investing requires either Credit, Capital or Knowledge. Which one are you bringing to the table?

If you are relying on Credit, you have to play by their rules. They are the ones putting their money at risk in lending it to you.

If you are relying on Capital, then you use your savings of $50k to buy a house Subject To or on a Wrap and start investing.

If you are relying on Knowledge, you team up with someone who has either Credit or Capital or Both and you provide the marketing and acquisition, then the rehab if you are doing rehabs, then the sales of the property and your partner provides the Credit & the Capital.

Chris Mason · Answer

Hi @Daniel Callahan,

@Andrew Postell hit the nail on the head as is normal, but point of clarity for you and the lurkers...

There is no such thing as a "1099 employee." If you are 1099, you do not have an employer, and you are not an employee.

You are an independent contractor, and you have a client. Per the IRS. These are IRS forms, so the IRS gets to define what they mean. Not a cheapo HR toad at some company.

This is important during negotiations. If they are calling you a "1099 employee," then they are lying to you, lying to the IRS, or both. This should be pointed out! Step up and demand a W2+benefits, or that the entire conversation shifts to accurately represent that the person you are speaking with is a client, not an employer, and as such you are free to have as many clients as you wish (other companies), can do what you want, show up when you want, and so on. Or, hey, if they want to keep you on 1099, then you need a 30% pay raise relative to what you'd be getting for similar work/experience/etc as W2 since you need to fund you rown retirement/healthcare/etc/etc. They can't have it both ways.

Calling someone an "employee," but putting them on 1099, and paying them the same as what W2 people with benefits get, is a huge rip-off that many Fortune 500s, as well as smaller outfits, perpetuate.

Daniel Callahan · Answer

Thanks Account Closed

You never hesitate to help out. Appreciate the response!

Andrew Postell · Answer

@Daniel Callahan so if you are commission only with a W2 my post above would still apply.  You would need 2 years of income history to calculate your average income for a Fannie/Freddie loan.  In theory, you could get one of those loan types that doesn't need 2 years, the rate/term would be different, but then once you hit your 2 year mark you could refinancing into better terms with a Fannie/Freddie loan.  Hope that helps!

Daniel Callahan · Answer

Thanks so much for taking the time! @Andrew Postell

Yeah its the 2 years part that kills me because I already feel like I should have been investing years ago lol, but If I have to play by those rules to go the conventional route then so be it.

Appreciate you!

Daniel Callahan · Answer

Thanks for taking the time out again to help me out @Andrew Postell

Love it when people like you can simplify things for me especially with me still being so new to all this.

Daniel Callahan · Answer

@Monica Breckenridge So to clarify because I think I confused myself with being 1099. I will be 100 percent commission after my training, but will still have a 401k plan, life, dental, health insurance, etc through my company. Does that change things with trying to get traditional financing?

Daniel Callahan · Answer

Hey @Chris Mason

I'm starting to think I made a mistake with understanding the true definition of 1099. So I'm currently in training for my job, getting paid hourly, and after my training I will be 100 percent commission only. I will have dental insurance, health insurance, 401k, paid vacations, etc. I made the assumption of thinking 1099 meant commission only.

Any 1099 employees struggle getting financing?

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