W-2 "contractor" looking to get first mortgage

[Chris Kajioka]

Hi All,

My mentor recommended I ask for some help here for my unique situation. My wife and I are looking to buy our first home (single family home), both our credit scores are 750+ and our combined income is over 130k per year. The issue is I was hired by a recruiter to work at a Pharma company and I get my W-2 through that recruiter. Two of the lenders I have spoken to note that our income, DTI, and credit score look great it's just the contract W-2 that's an issue because of the employment gap I have after my move. They said if it was "full-time" employment with the direct company then the gap would be fine. In addition, they advised that we could only use my wife income because she has been employed full-time the past 2 years.

A little history:

• I worked in a bio-tech company in Southern California for 5.5 years (2011-2017)
• Started to pursue a Software Engineering degree in 2015 - today (half-time student)
• I got married in 2016, she wanted to move back to the east coast; so we moved to RTP, NC Jan 2017
• Left my job Jan 2017 to move and decided to take a year break to learn some more programming and expand my SE knowledge (In addition to my school work)
• Started looking for new work mid-2018, got two offers: one full time position and one W-2 contract position for a lot more money. I took the money.
• I have been working at that W-2 contract position since July and my wife and I want to buy our first home

Financial info:

• 130k per year
• Under 40% DTI combined when assuming a high $2600 mortgage (we were targeting around 2000-2200 per month)
• As first time home buyers we don't have enough for 20% down but do have enough for at least 5% (plus closing costs)

We are looking in the high 200 low 300 range in Wake County, North Carolina but with just her income makes that impossible to qualify. Even though I am a "contractor" I get a W-2 via that company so I didn't think it would be in issue. Looking back I probably should have taken the full-time employment opportunity because we could have qualified for a new mortgage even with the pay cut.

So are we out of luck because I took that break (even though I have been working for the previous 8 months)? Do I just need to speak with a mortgage broker? It's funny because the mortgage plus taxes, etc. would still be cheaper than the rent we paid when we left Southern California. Plus we make more money and the cost of living is much lower here in NC...

[Chris Mason]

Originally posted by @Chris Kajioka:

@Harjeet Bhatti It was actually Jan 2017 to July 2018 so 1.5 years.  I could have worked while I was in school but when we moved to NC living on my wifes income was really easy due to the cost of living.  You are correct that I was in school during that time, but the "extra" classes were just me learning new languages outside of my school curriculum.

Am I correct to assume since I have been full-time from July 2018 through now that working with a conventional lender will be fine?  Even though I am considered a W-2 contractor (the company I am placed out doesn't pay me directly, they pay my employer who pays me).  I have received some push back from two conventional lenders in my area about the "contractor" part (even though I am W-2).

 "W-2 contractor" a fiction that is not to be found in the IRS tax code to the best of my knowledge. 

You're either an employee getting a W-2, or an independent contractor getting a 1099. (Salespersons, such as recruiters, can be either)

Companies violating the tax code invent categories like "1099 employee" and "W-2 contractor" to scam the IRS, and contractors/employees are none the wiser (typically they are also screwed by this, not just the IRS). At least according to Fannie Mae's understanding of the IRS tax code, which is what I know best.

Are you a W-2 employee, or are you a 1099 independent contractor? If employee, what is your compensation structure?