1099 Only Mortgages: The Simplest Loan for Contract Workers
If your income arrives on a 1099, you may not need bank statements or tax returns at all. Here is how 1099 only underwriting works.
Independent contractors face a strange problem. Their income is documented perfectly clearly on an IRS form, and yet conventional underwriting insists on two full tax returns, averages the results, and then subtracts every deduction the borrower legally claimed. The 1099 only program exists because that process makes no sense for a contractor.
How it works
The lender takes the gross amount on your 1099 forms, applies an expense factor that is usually between 10% and 20%, and divides by the number of months covered. A contractor with $180,000 of 1099 income and a 15% factor qualifies on $12,750 a month.
Because the IRS form is the documentation, there is no deposit analysis and no schedule C review. If you receive 1099s from several payers, they simply add together.
Who it fits
Traveling medical professionals, tech and creative contractors, insurance producers, real estate and mortgage professionals, recruiters, drivers, and consultants. It is also useful for a borrower with a W-2 job and a meaningful 1099 side income, because many lenders will count both in the same file.
History requirements
Two years of 1099 income in the same field produces the best terms. One year is workable when you can document prior employment doing similar work, which covers most people who converted from employee to contractor at the same type of company.
A year-to-date earnings statement or a set of recent pay records from the payer is often requested to confirm the income has continued into the current year.
Practical tips
Keep copies of every 1099 as it arrives rather than reconstructing them later, and avoid changing payers in the sixty days before you apply, since a brand new contract with no payment history is harder to count. If your income dropped this year, be ready to explain why; underwriters are reasonable about a slow quarter and unforgiving about a surprise.
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