Innovations in Financing 1099 Mortgage Loan Solutions

The problem with 1099s

There’s nothing wrong with being a 1099 employee, gig worker, or independent contractor. In fact, it’s a great lifestyle in which you control your own destiny.

That is, until you apply for a mortgage. Then things get complicated. Tax write-offs, once your friend, become your worst enemy.

But new programs let you take back control of your home financing destiny, allowing you to easily qualify using only 1099s. No tax returns, prying questions, or your second cousin’s blood type.

Here’s how to get approved without the runaround.

Emerging 1099 mortgage programs

Many lenders are now offering mortgage programs based strictly on 1099s.

Tax returns are a deal-killer for many applicants. Write-offs reduce your eligible mortgage income. So while business expenses help you pay less taxes, they don’t do you any favors at mortgage qualification time.

For example, you make $300,000 per year “in real life” but writing off $290,000 means you only made $10,000 in the eyes of a traditional mortgage lender.

But a 1099 mortgage lender will let your $300,000 income speak for itself. Here’s an example.

1099 mortgage qualification example

*Assumes $1,000/mo taxes, insurance, HOA.

A 1099 mortgage lender takes your gross 1099 income and subtracts an “expense factor.” This is an assumed, non-verified amount for business expenses. Like bank statement loans, you don’t need to document or prove expenses with tax returns.

Traditional versus Non-QM 1099 lenders

It’s possible to qualify for a mortgage as a 1099 employee with a traditional “Qualified Mortgage” (QM) lender. Think conventional loans, FHA, VA and USDA loans. However, you’ll need to supply tax returns.

As discussed previously, the lender will remove business expenses from your qualification income.

A “Non-QM” lender does not have to approve loans based on traditional means. It can use 1099s, bank statements, or even assets to prove repayment ability, tax returns not required.

Still, it’s worth seeing if you can be approved through traditional loan programs, which could allow lower down payments, credit scores, and rates.

Types of 1099 loans

Non-QM: The lender bases approval on 1099 income over the past 1-2 years, less an expense factor based on the type of business.

Conventional: Loan agencies Fannie Mae and Freddie Mac require two years of filed tax returns showing adequate after-expense income to qualify. A year-to-date profit and loss statement (P&L) may also be required

FHA: Two years of tax returns are required, although in some cases newly self employed individuals with one full year of filed tax returns can be approved.

VA loans: 2 years of filed tax returns required, with some exceptions for those with one year of self-employment.

USDA home loans: Two years of filed tax returns required.

Non-QM 1099 mortgage requirements

Let’s take a deeper look at requirements for Non-QM 1099 loans.

Employment status: Currently self-employed for 1-2 years. Some lenders require you to receive 50%+ of your income in 1099s.

Employer: Some 1099 lenders require you to work for a single employer. For instance, you contract with only one company, similar to a full-time job but as a 1099 employee. Some lenders allow you to combine 1099s from various sources to prove income.

Verification: A business license, CPA letter, or other verification of current self-employment may be required.

Documentation: 1-2 years 1099s. No tax returns. Proof of year-to-date earnings via bank statements, canceled checks, or other proof of payment may be required.

Down payment: 10-20% down.

Mortgage insurance: No PMI required for most programs.

Credit: 620-660 minimum but 700+ for the best terms.

Loan purpose: Purchase, rate/term refinance and cash-out refinance.

Property type: Single-family residence, warrantable condo, non-warrantable condo in some cases. Lenders many not allow manufactured homes, multifamily, or rural properties.

Property use: Primary residence, 2nd home, investment property.

Loan type: 15, 30, 40-year fixed. Interest only available from some lenders.

Debt-to-income ratio (DTI): Most lenders allow up to 50% of your income to go toward debt obligations plus housing.

Loan amounts: $150k- $3.5 million+

Co-applicants: Some lenders allow a W2 co-applicant.

Best 1099 mortgage lenders

More and more lenders are now offering 1099 mortgages. Here are a few dominant players.

My Perfect Mortgage network: Sometimes it’s hard to find a lender that can handle your scenario. My Perfect Mortgage can analyze your situation and match you with the right 1099 lender.

CrossCountry Mortgage: This Non-QM lender specializes in self-employed borrowers and offers a 40-year term for the most affordable payment.

NASB: This lender offers a 10%-down 1099 option, although mortgage insurance is required. The minimum credit score is 680.

Angel Oak: This is a predominant Non-QM lender. For 1099 loans, you must have worked for a single employer to qualify.

Luxury Mortgage: This lender is lenient, offering a 55% maximum DTI. You may also qualify with a 620 score by demonstrating strong compensating factors like additional assets and low DTI.

1099 mortgage rates

As you might expect, 1099 mortgage rates are higher than conventional ones, but not by much. Rates are similar to those for bank statement loans. In our research, we found that bank statement loan rates are only about 1-1.5% higher than conventional rates.

That’s a great deal considering all the paperwork you don’t have to provide and the speed at which you can close a 1099 loan.

Is a 1099 mortgage for you?

If you make 1099 income, it’ worth looking into this loan program. New lenders and offerings are emerging daily to help self-employed contractors and gig workers buy and refinance property.