Getting a mortgage as a 1099 contractor, freelancer, or self-employed borrower is harder than it needs to be, not because the income isn't real, but because it doesn't come in a W-2 box. Lenders can work with 1099 income. They just need to see it documented correctly and consistently.
How Lenders Verify 1099 Income
For conventional and FHA loans, lenders calculate self-employed income using the net income from your federal tax returns, after deductions. If you're a contractor earning $150,000 gross but showing $80,000 after business expenses, the lender generally qualifies you on $80,000.
This is why many self-employed buyers feel like they can't qualify. Their taxable income, reduced by legitimate business deductions, looks much lower than what actually flows through their business accounts. Our guide to mortgage challenges for freelancers covers the most common documentation obstacles and how to get ahead of them.
Two Years of Self-Employment Required
Most lenders require two full years of self-employment history, documented by two years of federal tax returns. If you went self-employed 18 months ago, you're typically not eligible for a conventional or FHA loan until you have the second year of returns.
One exception: if you transitioned from W-2 employment in the same field to self-employment, some lenders will consider a one-year self-employment history combined with prior W-2 income in the same industry. This requires individual underwriter review and isn't guaranteed, but it's worth asking about before you assume you have to wait.
What Documents You'll Need
For a standard self-employed mortgage: two years of personal federal tax returns (all pages, all schedules), two years of business tax returns if you file as an S-Corp or partnership, a year-to-date profit and loss statement (P&L), and two to three months of business and personal bank statements.
Some lenders add a CPA letter verifying your business has been operating for at least two years and confirming your self-employment status. This is most common when income has varied significantly between the two years.
Not sure which loan program fits your income situation?
We work with 1099 borrowers every week, on conventional, bank statement, and DSCR products. Tell us how your income is structured and we'll match you to the right product before you apply.
Get My 1099 Pre-ApprovalBank Statement Loans: The Alternative to Tax Returns
If your tax return income doesn't reflect your actual cash flow, bank statement loans are built for your situation. These non-QM products use 12 to 24 months of business or personal bank deposits to calculate qualifying income rather than tax return net income.
The calculation typically takes your average monthly deposits and applies an expense ratio, often 50 percent for personal accounts or 40 to 50 percent for business accounts, to arrive at a qualifying income figure. This often yields a much higher number than the tax return net income. Our guide to bank statement loans walks through how the income calculation works in detail.
The trade-off is rate. Bank statement loans typically price 0.5 to 1.5 points higher than conventional rates. For 1099 earners who genuinely earn more than their returns show, the ability to qualify at all often outweighs the rate premium.
DSCR Loans for Investors With 1099 Income
If the property you're buying is an investment property, DSCR loans remove personal income from the equation entirely. The loan qualifies based on the property's rental income relative to the mortgage payment. Your 1099 income, your tax returns, and your deductions don't factor in.
What to Do Before You Apply
If you're planning to apply in the next six to twelve months, talk to a tax professional about the trade-off between maximizing deductions this year and qualifying for a mortgage. Showing more income on your return by taking fewer deductions increases your qualifying income. It's a balance each borrower has to evaluate based on their specific numbers. Our post on mortgage tax deductions for self-employed homeowners covers that trade-off in detail.
At 14 Days To Close, we work with 1099 borrowers regularly using both conventional and bank statement products. Give us a call or start your pre-approval below.
