Mortgage Loans for 1099 Contractors

Guide for Schedule C self-employed borrowers.

Use your 1099-NEC Form to Get a Loan

As an alternative to the standard mortgage documentation requested by banks for loan approval, independent contractors have another non-qm loan option to use instead of bank statements to close their purchase or refinance transaction. Mortgage brokers have lenders who will verify your income through your official 1099-NEC statement along with a YTD profit & loss by your tax preparer. There is no requirement to review tax returns or transcripts.

Similar to the bank statement loan's rate, minimum credit, LTV requirements, and property useage this product requires even less income documentation.

1099 loan highlights

  • - Qualify based on 1099 form income, not tax returns
  • - Best for self-employed borrowers - independent contractors, 1099 employees & gig workers
  • - Requires most recent year 1099 & YTD P&L
  • - Down payments begin at just 15-percent
  • - Minimum credit score required: 660
  • - Minimum loan: $150,000
  • - Maximum amount: $7,000,000

While approval is possible with just one 1099-form if you buy a home in January or February, most non-QM lenders will require a year-to-date profit & loss statement to firmly calculate your average monthly income.

Conventional vs. Bank Statement vs. 1099 Comparison
30-year Fixed Loan Type Conventional Bank Statements 1099 Form
The loan scenario above is for a borrower with a 740 or higher middle credit score financing a primary home using their personal bank statements or 1099-NEC. Debt ratios over 50 do not qualify.
1099 form - The independent contractor proves their monthly income from their recent IRS 1099 than with the AGI on their tax returns or years worht of bank statements.
Purchase Price: $1,000,000 $1,000,000 $1,000,000
Down Payment: $200,000 $200,000 $200,000
Loan amount: $800,000 $800,000 $800,000
Monthly Income: $11,000 $14,000 $14,000
Interest Rate: Low market rate approx. 1-2% above conv. rates approx. 0.125-.25% above bank statement rates
Debt ratios: 52.8% 40.3% 40.9%

Why choose the 1099 statement mortgage?

A mortgage based on a 1099 non-employee compensation form is best for self-employed borrowers and contractors earning an income that is not salaried, is consistent every month, or if inconsistent can prove for the last 2-3 years that large or zero deposits are the norm some months. Here are some reasons to not use the bank statement loan and when to use a 1099 for income verification.

  • - statements have low or no deposits for multiple months
  • - statements have excessive NSF or overdrawn fees in 1 year
  • - statement shows a joint account holder who is a non-borrower
  • - statement shows monthly debts not reported on the credit report
  • - unable to provide 12 or 24 statements
form 1099 NEC
female happy news at work

Kelly's Loan Closing

Sheryl is graphic designer working for several companies. The bulk of her income was reduced for a few months from one of the companies she create designs for. She had 10 overdraft fees just before applying for a bank statement mortgage.

This decline in income and recent overdrafts was why the first lender declined her. Kelly applied for a 1099 income mortgage two months later when her finances were in better shape and got approved.

  • Purchase: $729,000
  • Loan: 1099 contractor mortgage
  • Down payment - 20-percent
.

The Nice Part (& not so nice) about 1099 Mortgage Loans

Benefits

- No 1040 Income Tax Returns. This loan offers independent contractors and 1099 paid employees the opportunity to qualify for a home loan using their 1099 forms. This means no requirement for IRS tax forms. Just one or two statements are needed instead of 12 or 24 bank statements where underwriters and the income division heavily scrutinizes deposits which may require an explanation.

Not great but acceptable

- Down payment. Although bank statement loans offer qualified self-employed borrowers a 10-percent down payment, the 1099-NEC mortgage loan requires 15-percent down.
- Interest rate. The interest rate is higher than the bank statement loan by approximately .125-0.25% usually due to the applicant's middle credit score and loan-to-value.

I am all set

Let's Start Now


Alternative Non-QM loans to Consider

For borrowers who have concerns about qualifying for a bank statement mortgage or simply wish to consider alternative non-QM loan programs, there are several other specialized financing solutions available that utilize more flexible income calculations and verification methods.

1.) Income Verified fromn P & L Statements

- Another income verification option is the Profit and Loss (P&L) mortgage. It works by getting your certified professional accountant or licensed tax preparer to prepare a P&L that is signed by you & the CPA. Some programs only need your signature but will likely have higher rates. For the most part, interest rates are similar to the 1099 mortgage or .25% higher than the bank statement loan. This loan offers a clear picture of your cash flow and earnings for the underwriter.

2.) Asset-based lending

A second choice involves an asset-based loan that enables you to qualify by utilziing your account balances of liquid assets you own instead of qualifying with self-employment or salaried employment. The requirement is your assets must be adequate to qualify. Normally that means 5- to 7 years worth of the new mortgage payment in qualifying assets. Learn more about the asset utilization program here

FAQs

Typical questions borrowers also ask about this loan product

How is my income calculated with the 1099 loan?

The lender will use a maximum of 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)

What is the lowest credit score to qualify?

The lowest middle credit score necessary for approval is 660 for most lenders who offer 1099 only mortgage loans. If you have a middle score of 760 or higher you likely be able to get the best possible loan terms and rates.

What if I have multiple 1099 forms?

You may use all of the income reported on your forms as long as they can be proven to be associated with your profession or industry.
Example: 1099's from Google, Tik Tok, Facebook, Instagram etc. will be combined and averaged for your monthly income.
Another example is a realtor who has their commissions from sales and rentals on different 1099 forms or works for several companies.

How many months of liquid reserves do I need?

The number of months is typically 3- to 6-months depending on the loan amount and credit score.

What documents do I need to apply with?

You will need copies of:

 

1. View the disclosure disclaimer regarding loan approval, loan product availability and qualifying for a loan. Not All borrowers will qualify.