1099 Mortgage for Independent Contractors

How Does a Home Loan for 1099 Consultants Work?


This type of home loan has been long over due. The reason is because the number of self-employed workers in the U.S. is rising. This pool of potential borrowers includes freelancers, gig economy workers, salepersons who are paid commissions & independent contractors who work remotely or virtually from either their home, a shared office space, or coffee houses.

home based freelancer

 

 

Self-employed workers typically receive a 1099 at the end of the year to file on their tax returns. If you receive a commission or a fee for your service business and or receive a 1099-MISC or similar 1099 forms from companies this loan program may suit your needs.

This Non-QM home loan for self-employed borrowers can be used instead of two years of tax returns and is one of the popular alternative income loan without tax return mortgages like the bank statement mortgage loan program. If you were denied a mortgage due to debt to income ratios from the bank or another mortgage company, check out this loan to use more of your income.

How is income calculated?

The lender will use 90 percent of the income documented on the 1099's and YTD income. So if your 1099 income reported for the last two years totals $220,000. Your income is $198,000 ($220,000 *.9), or $8,250 per month ($198,000/24 months).

How much is the down payment for a 1099 home loan?

The mortgage lender will allow as low as a ten-percent down payment, 90 LTV, if the borrower has a 740 or above middle credit score. Credit scores from 680-739 can qualify with a 15-percent down payment.

What interest rate can I expect?

Rates are higher than loans with traditional tax returns. The less you put as a down payment the higher the interest rate.

With a 50% down payment and excellent credit over 740 interest rates start at 4.50% (4.63 APR).
With a 25-percent down payment and the same credit score the rate is below 5-percent.
With only 10-percent down and the same credit score the rate jumps to 6.00% and a 6.12% APR. However, the interest rate may be bought down by one-half percent if it's above 5.00%.

According to the Bureau of Labor Statistics (BLS) from July 2019[1], there are 16 million self-employed workers. However, according to the IRS, there were 25.5 million sole proprietorships filed in 2016.

IRS 1099 misc form

Requirements for a Purchase or Refinance

Copies of your 1099's for the last 2 years: Your lender will want to see the Form 1099-MISC for each company which you worked for. If you don't receive this form due to not earning enough to meet the filing threshold, you may need to gather copies of checks, bank statements and other proof of payment.

Document Year-To-Date (YTD) income through a recent bank statements or paycheck stub.

EXAMPLE:
$880,000 purchase with a 15-percent down payment on a house in Irvine, CA as a primary residence

Loan amount of $748,000
First mortgage loan
30 Year Fixed at 5.25% = $4,130/month. You will need a co-borrower if your monthly income is $8,250 like the example above.
** conforming loan limit is $765,600 in Orange County, CA.

prequalify to buy a home


Advantages & Disadvantages

The interest rates are almost identical with the bank statement loan but you don't have to worry about verifying large deposits the lender may question or NSF's. A lot less paperwork. In some cases the rate is better than the bank statement program.

A disadvantage is the interest rate is higher than if you provided two full years of tax returns.

EXPERT TIP: if you are a digital nomad and work from various locations abroad, try to keep a U.S. address, preferably the same for the last two years on your 1099 forms.

Cash Reserve Guidelines

Contractors will be required to show 3 to 6 months of principal, interest, taxes and insurance (PITI) in a liquid account for 60 days prior to closing.

  Rates above are examples as of October 2020 and may be slightly higher orlower based on the date you apply.

Cities with most self-employed in the U.S. we serve
  • Los Angeles
  • San Diego
  • Long Beach
  • San Jose
  • San Francisco
  • Oakland
  • Oxnard
  • Thousand Oaks
  • Ventura
  • Seattle
  • Portland
  • Honolulu
  • Denver
  • Colorado Springs
  • Boise
  • Austin
  • Dallas
  • Houston
  • Provo
  • Salt Lake City
  • Scottsdale
  • Phoenix
  • Knoxville
  • Nashville
  • Minneapolis
  • Miami
  • Orlando
  • Atlanta

 

  1. Pew Research Aug. 2019 - Source