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- A 1099 mortgage is a type of non-QM loan that allows borrowers to use their 1099 forms to show their income.
- 1099 earners can use their income to qualify for a conforming mortgage, but the process is often more challenging.
- To qualify for a 1099 mortgage, you'll likely need a good credit score and a sizable down payment.
When mortgage lenders consider your application for a home loan, they have to make sure you can afford your monthly payments. This process is famously challenging for self-employed borrowers, who often jump through hoops providing document after document only to find that they've been outright rejected or approved for way less than what they believe they can afford.
Due to the documentation challenges that can come with trying to get approved for a mortgage as a self-employed borrower, some borrowers simply give up and resign themselves to a lifetime of renting.
But many lenders offer alternatives for self-employed individuals who struggle to qualify for a conforming mortgage. One popular alternative, the 1099 mortgage, uses a borrower's 1099 forms to verify their income in lieu of tax returns.
1099 forms are IRS forms that document income paid to someone who isn't an employee of the payer. Freelancers, independent contractors, and other self-employed individuals receive 1099s when they complete work for a business.
Can you use 1099s as proof of income for a mortgage?
Self-employed individuals who earn 1099 income — meaning they receive income from entities they aren't employed by — are allowed to use that income to qualify for a conforming mortgage (this the most common type of mortgage that most people are referring to when they talk about getting a mortgage).
But lenders require a lot of documentation from these borrowers to verify their income, including tax returns from the last two years.
The problem with providing tax returns as a self-employed borrower is that they might not accurately show your income, which limits how much you can borrow. This is because business owners often use a lot of deductions to reduce their taxable income. Those deductions save them money on taxes, but because mortgage lenders use a borrower's taxable income to calculate how much mortgage they can afford, it can make it difficult to qualify for a large enough mortgage.
Non-QM 1099 mortgages
Non-qualified mortgages, also called non-QM loans, don't need to use a borrower's tax returns to qualify them for a mortgage.
A non-QM loan is a mortgage that doesn't meet the requirements to be considered a qualified mortgage. Qualified mortgages meet certain criteria that make them safer for consumers, including using specific types of documentation to verify a borrower's income.
A 1099 mortgage is a type of non-QM loan. These mortgages use a borrower's 1099 income to qualify them for a mortgage, without requiring the borrower's tax returns.
"They are designed for self-employed and contract workers who cannot qualify for a conventional mortgage based on their tax documents," says Warner Quiroga, president and CEO of Prestige Home Buyers. "Borrowers can use their 1099 statements instead of tax documents to qualify for a mortgage loan."
These mortgages are considered riskier than conforming mortgages, which means you should expect to pay a slightly higher interest rate when getting one.
"Regarding cost, 1099 mortgages may be more expensive than traditional conforming mortgages because they are considered non-qualified mortgages, which often have higher interest rates and fees," Quiroga says.
How to qualify for a 1099 mortgage
To qualify for one of these mortgages, be prepared to provide 1099s for the last one or two years. You'll also likely need to provide some documentation of your year-to-date earnings. Bank statements may satisfy this requirement.
As with conforming mortgages, in addition to showing that you have the income to afford your monthly payments, you'll also need to meet your lender's credit requirements.
To account for the risk they present to lenders, 1099 mortgages and other non-QM loans often have stricter credit requirements than conforming mortgages. You'll likely need a credit score in the upper 600s and at least a 10% down payment to qualify.
You'll also probably need to have been self-employed and running your business for at least two years.
Where to get a 1099 mortgage
To get a 1099 mortgage, you'll want to find a lender that offers non-QM mortgages. A few of our favorite lenders that offer these types of mortgages include:
Lenders don't always clearly advertise their non-QM options online. If there's a lender you'd like to work with and you're wondering if they offer 1099 mortgages, you can always call and ask.