temporary job change

Anonymous · ‎11-23-2016

Ok - my boss is going to be moving to a federal job in July. I am going with - which is great. BUT

My current salary is paid through a partnership. So I have a salary and W2 - been here for 7 years! Starting in January Boss wants to pay me as a contractor and 1099 me for the 6 months. Easier transition for him since they are closing the partnership and he will pay me direct. Sounds great right. here's the problem. I'm told that I wont' be able to get a loan written during that time because I have to prove 2 years of self employment income. Even though my boss would write a letter verifying the income and everything.....Is that right? I'm technically working for the same boss, just transitioning.

Per loan officer the job transition is going to be a problem because I"d be self employed for 6 months is a problem. Scores are fine. My income in July doubles. I literally have a few month overlap or my world would be great!

I'm about making myself sick over this because my landlord wants to sell the house because they need the funds to buy a new one....they sold theirs but need funds from ours to get into a new house. . But they can't close until next year for tax purposes. I have to pay off credit card with the year end bonus I'll get next week to get by debt/loan ratio down but I'll still be off by about $20 a month using current income, because of student loan figure, but using the $3K a month I get starting in January - I'd be OK.

Everything is happening - but in the entirely wrong order.

Any ideas? Even if I got my mom to pay off ONE student loan for me (about $5K).....I still have the job issue.....

StartingOver10 · ‎11-23-2016

1099 income is self-employment and you are responsible for paying for both your taxes and your "employer's" share of taxes out of the income you receive. That additional amount you have to pay is huge. Best to check with a CPA to see what impact the 1099 income will be to you before you sign an independent contractor agreement.

Technically, you shouldn't be paid via 1099 anyway because there are rules for that type of income and from your brief post above, you are really operating an employee and not a 1099 independent contractor. You can look up those rules under IRS.gov

Did you sign the independent contractor agreement already? Is it too late to re-negotiate your contract to become a regular W-2 employee as you are right now?

If you can't change it, then you will need to wait until you are paid as a W-2 employee again or until you have two years of 1099 type income. Once you go back to W-2 employment you can qualify right away - using your income at that time.

Anonymous · ‎11-23-2016

I work for a lawyer....we already looked in to rules....I've worked for attorney's this way before with no issue. I'm not worried about that. He is going to pay me enough to cover the self-employement taxes, etc. We are increasing my current salary rate to a contract rate high enough to cover it.

I haven't signed an agreement yet....we are trying to get this to work out. I have considered talking to him regaridng trying to go salary v. contract, but the way we have to set it all up for a temporary basis seems crazy. My Boss got a judicial position and I"m going with as his assistant. Problem is closing down the partnership that I currently get paid through, transferring me to his firm and getting to the courthouse when his appointment takes place on July 2. As he promised to make sure I was paid and could cover my bills no matter what until I got to the courthouse.

I just didn't know if there was a way to explain or write the loan during that time frame. The landlord wants to close in Jan/Feb which means I'd be on 1099 during that time as my last 'paystub' will be dated 12/31 and I don't think I can get everything done fast enough to close on Jan 2.

StartingOver10 · ‎11-23-2016

You should be able to contact a decent mortgage lender and still close by Jan 2. Not a big box bank because they move very slowly. If you don't have one that you can move that fast, pm me and I will refer you to one that can.

Anonymous · ‎11-23-2016

OK - since it's the crappy day before a holiday - I'll call Francisco back on Monday...that gives me the weekend to see if I can get ducks in a row.

I have some credit cards to pay off - and was waiting for bomus check from work to pay off...which would be beginning of next week. What's the max DTI on conventional loan if you know? Thanks.

StartingOver10 · ‎11-23-2016

From what I see, max DTI (backend ratio) is 43% to 45% for conventional and 56.99% for FHA (but this is lender specific, some lenders won't go that high).

BTW, Congrats! Your new position sounds like a wonderful opportunity!

Anonymous · ‎11-23-2016

oooooo - just got off the phone with my boss. we are going to talk about just changing me to salary with his firm from the old one. No Gap....still salary! Cross fingers! We are going to discuss on Monday when we get back from the holiday and he is back in town from NY!

pipeguy · ‎11-23-2016

>>my boss is going to be moving to a federal job in July. I am going with - which is great.<<

Without getting into the politics of this, you might not want to make any major commitments just yet and the reason I say that is the new administration has "promised" to cut non-essential federal employment by at least 10% typically by attrition and not replacing job openings. I've read a couple of articles on this and details are lacking as far as what they expect to do and in what departments. If your boss was confirmed for the federal bench, you are good to go because those are lifetime positions, anything else especially with a "start date" in July 2018 and the lack of a current budget.... that may be under the new rules and no one knows what those rules are yet..

https://www.washingtonpost.com/news/powerpost/wp/2016/11/21/trump-republicans-plan-to-target-governm...

https://live.washingtonpost.com/what-a-trump-presidency-could-mean-for-federal-workers.html

I'm not attempting to debate the Federal Budget, Congressional action/inaction or the new administration, I'm just saying I would not be commiting to a mortgage now based on the unknowns for 2017-18

Anonymous · ‎11-23-2016

Pipeguy: Start date is July 2017, (not 2018) as a federal judge. The appointment is already set. I'm not worried about the position being cut. We have already been assured of this.

pipeguy · ‎11-23-2016

@Anonymous wrote:
Pipeguy: Start date is July 2017, (not 2018) as a federal judge. The appointment is already set. I'm not worried about the position being cut. We have already been assured of this.

The 2018 was a typo (I meant 2017) - if your boss has been confirmed by the Senate, congrats !! you are good to go and it's a lifetime appointment