July 21, 2015
A recent article posted at CNN Money raises some interesting FHA loan questions regarding the difference between workers who act as independent contractors and those who work as employees.
FHA loan rules require more job and income related information from FHA loan applicants who are self-employed or who work as part of a family business. These borrowers may need additional tax data and may need to submit profit and loss statements and related details that can help a lender verify the applicant’s income and employment.
According to the CNN Money article titled, “When an independent contractor is really an employee”, there’s a large number of recent lawsuits that, “allege companies should not be classifying workers as free agents. For example, last month a California commission ruled that an Uber driver is really an employee.”
Additionally, “The U.S. Department of Labor offered guidance this week on how it interprets the tests to determine whether a worker should be classified as an employee or independent contractor. The not-so-subtle message: The agency pretty much considers most workers to be employees under the Fair Labor Standards Act. And it is likely to apply a very broad definition when investigating a company’s practices.”
As previously mentioned, a full time employee has a different set of requirements under FHA loan rules than a self-employed person. Is an independent contractor viewed as a “self employed” borrower? That may depend on a variety of factors that the lender may need to make a determination on. Lender standards may vary from one company to another, so there’s no set answer.
But for those who do view themselves as self-employed, or who are considered self-employed under the new Department Of Labor guidance, being prepared for the additional documentation requirements can help you save a lot of time when you turn in your application for an FHA loan or refinance loan. Here’s what FHA loan rules say is needed for self employed borrowers in addition to the usual FHA loan application data:
Self employed borrowers must provide:
–signed, dated individual tax returns, with all applicable tax schedules for the most recent two years
–for a corporation, S corporation, or partnership, signed copies of Federal business income tax returns for the last two years, with all applicable tax
schedules
–a year-to-date profit and loss (P&L) statement and balance sheet, and
–a business credit report for corporations and S corporations.
Speak to a loan officer about added requirements that may be expected based on that financial institution’s standards.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for review.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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