A borrower of ours, who has been a W2 wage earner for years, told us over the weekend that his current employer, where he started three weeks ago, is 50% owned by him. He was unaware that this would be a problem b/c he is still paid a wage-earner salary, with taxes withheld, in the same manner he has always been paid (as opposed to 1099 “distributions”).
The issue is that any person who owns over 25% of an entity (corporation, LLC, partnership, etc.) is effectively “self-employed.” And, any person who is self-employed needs one to two years of self-employment history (verified with tax returns) no matter how he is currently paid (W2 or 1099).
This is an increasingly common issue, as many tech employees are starting up their own companies.
Note: The borrower’s Realtors are the individuals who astutely told the borrower to bring this to our attention b/c they know lending guidelines so well. This will be the subject of Wednesday’s blog.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646