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1099-Income Only versus W2-Income Mortgage Loans
Can you get approved for a mortgage loan with 1099 income only versus W2-income?
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5 Replies
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Yes, getting approved for a mortgage loan with only 1099 and no W-2 income is possible. However, the process can be more complicated and different from traditional W-2 income verification. Here’s what you need to know:
Income Verification:
- Two years of tax returns are typically needed to show stable or increasing income.
- Some lenders may require three years for industries that have large fluctuations.
Debt-to-Income Ratio:
- Lenders will look at your net income after business expenses.
- An average of the past two years’ incomes may be used.
Documentation:
- Full tax returns (personal and business).
- Profit and loss statements.
- Business bank statements.
- 1099 forms.
Stability:
Lenders prefer consistent or increasing income.
You may be asked to show that you have been in the same line of work for two or more years.
Credit Score:
- Usually, higher credit scores are required compared to W-2 borrowers.
- 680+ for conventional loans, although some lenders will go lower
Down Payment: A larger down payment may be required.
Cash Reserves: You should show more cash reserves than a borrower who receives a W-2.
Loan Types:
- Commonly, conventional loans are used.
- FHA and VA loans are also options if their requirements are met.
- Non-QM Loans 1099-Income Only Mortgage Loans
- Some banks offer self-employed or bank statement loans.
Write-offs: Remember that significant business deductions can decrease your qualifying income. Non-QM 1099-Income Only Loans do not require tax returns.
Consistency: Lenders like consistent business structure and income sources.
Non-QM Options:
- Some banks offer nonqualified mortgage options.
- These are more flexible about verifying your earnings.
- There are no Income Tax Returns. You can receive 1099 income only for one year.
- You must also be a 1099-wage earner for two years.
Industry:
Certain industries may carry more risk in their eyes, which could impact approval odds/terms, etc.
It’s important to understand that every lender has different policies. Some lenders have more experience working with people who earn a 1099 income, while others are less comfortable with this situation. If you are self-employed, working with a mortgage broker specializing in this area can be helpful because they have relationships with many different lenders and can help guide you through the process.
Also, timing can be key when applying for a mortgage. If you plan on making any major changes to your business structure or income, apply before these changes occur or wait until after they occur so that your approval process goes smoothly.
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I would like more information getting a mortgage with 1099 income with no income taxes and 1099-income only. I like to know more about non-QM loans that are 1099 income only, with one year 1099 income only and the various types of 1099 income only mortgage loans. I also would like to know the non-QM 1099-income only mortgage loan process, from qualification to closing.
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Definitely! I can give you a more focused range of ideas for getting a loan with only 1099 income, especially centered around non-QM loans for people who need more tax documentation and a short income history.
Non-QM Loans for Only 1099 Income (Without Tax Returns Required):
Bank Statement Loans:
- Verify earnings using one or two years’ worth of bank statements.
- Typically, deposits are used as proof of income.
- May accept personal or business bank statements.
1099-Only Loans:
- Designed for independent contractors.
- Can verify income with 1099 forms, often without tax returns.
Asset Depletion Loans:
- Qualify based on total assets rather than income.
- It is a good option if you have a high net worth but report lower earnings.
DSCR (Debt Service Coverage Ratio) Loans:
- For investment properties only.
- Base qualification on the potential rental income of the property to be financed.
Types of Mortgage Loans Based on 1099 Income Only:
One-Year 1099 Income Loans:
- For borrowers with just one year’s history of receiving this pay type.
- Usually, they require larger down payments and higher credit scores.
No-Doc or Limited-Doc Loans:
- Minimal income documentation is needed to close.
- Often, they come with higher interest rates and down payment requirements.
Stated Income Loans:
- Borrower states their income with minimal verification from the lender.
- Less common due to increased regulations
Interest-Only Loans:
- Lower initial mortgage payments but slower equity buildup.
- It can be useful for those with irregular earnings who want lower monthly payments.
Non-QM 1099-Income Only Mortgage Loan Process Overview:
Pre-Qualification: Determine creditworthiness and overall financial situation upfront to see which non-traditional mortgage programs could work.
Loan Program Selection: Identify & select the most appropriate non-QM plan based on the applicant’s case specifics.
Document Gathering Stage: 1 or 2 copies of Form(s) 1099 (typically) Bank Statements (12-24 months). Proof Of Assets Verification(s) Business License. Or Proof Self-Employment Confirmation(s).
Loan Application Submission Step: Complete the formal application process per lender policy.
Income Calculation Phase(s): Evaluate the applicant’s eligibility for the chosen program by considering average monthly deposits, etc.
Property Appraisal Procedure: Official market value assessment conducted by a professional appraiser
Underwriting Process: Closely analyze all submitted information.
Conditional Approval Granted: Loan approved subject to satisfaction of certain conditions.
Satisfaction Of Conditions: Additional documentation may be requested before final funding approval.
Final Approval Issued: Approval given by underwriter(s) working on behalf of lending institution responsible for originating said loan product.
Closing Stage: Reviewing, signing, and funding all necessary paperwork related to mortgage transactions.
Make payment for closing and down payment(s).
1099 Income Only Non-QM Loan Considerations:
Interest Rates:
Usually higher than conventional loans.
The rate may vary significantly depending on the program selected and borrower profile.
Down Payments:
They often require larger upfront payments (20-30% or more).
Some programs may have lower options with higher rates.
Credit Scores:
Typically 660+ is required for better terms.
Some programs go as low as 600.
Debt-to-Income Ratio(s):
It is more flexible than traditional loans, sometimes up to 50% or higher.
Cash Reserves Requirements: You may need to keep 6-12 months’ mortgage payments in the reserve account(s).
Prepayment Penalties Existence:
Please read your documents carefully as they might exist!
Limits on Loans Amounts Borrowed :
Can often exceed conforming loan limits set forth by FHFA
Different Property Types Accepted :
It may allow non-warrantable condos or mixed-use properties that are not eligible under regular guidelines.
Income Stability Proving Timeframe :
While only one year is mandated, showing stable / increasing income over longer periods viewed favorably lenders do take look back past two tax returns sometimes even three years!
Future Refinancing Potential Issues:
Consider potential challenges in refinancing non-QM loans in the future.
Non-QM Mortgage Lender Experience:
Look for lenders experienced in non-QM and 1099 income loans.
Mortgage Broker Assistance:
Working with a mortgage broker like the team at Gustan Cho Associates, who is experienced in non-QM loans, is an urgent priority. Mortgage brokers need to help borrowers understand that these are not normal mortgage guidelines. They’re supposed to help people who wouldn’t qualify under regular rules. But with greater flexibility come harder requirements elsewhere—usually at a much higher price tag. Make sure you know what you’re getting into before signing anything.
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I would like more information on every specific aspects of these non-QM 1099 income mortgage loans including owner-occupant homes, second homes, and investment homes as well as the eligibility requirements, credit scores, down payment, and types of properties that can be financed. Thank you in advance.
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Of course! I would love to help. Based on my experience as a loan officer, here is an extensive guide on non-QM 1099 income mortgage loans for owner-occupied homes, second homes, and investment properties.
Owner-Occupied Homes: Eligibility Requirements:
- Proof of 1099 income (typically 1-2 years)
- Bank statements (12-24 months)
- Proof of assets
- Business license or proof of self-employment
Credit Scores:
- Minimum: Often 600-620
- Preferred: 660+
- Best terms: 700+
Down Payment:
- Minimum: Can be as low as 10% for strong borrowers
- Typical: 20-25%
- Lower credit scores may require 30%+
Property Types:
- Single-family homes
- Condominiums (including some non-warrantable)
- Townhouses
- 2-4 unit properties (if one unit is owner-occupied)
- Planned Unit Developments (PUDs)
Second Homes: Eligibility Requirements:
- Similar to owner-occupied, plus
- Property must be suitable for year-round occupancy
- Generally located in a resort or vacation area
- The borrower must have exclusive control over the property
Credit Scores:
- Minimum: Often 620-640
- Preferred: 680+
Best terms: 720+
Down Payment:
- Minimum: Usually 20%
- Typical: 25-30%
Some lenders may require up to 35-40%
Property Types:
- Single-family homes
- Condominiums
- Townhouses
- Some lenders may allow small multi-unit properties
Investment Properties: Eligibility Requirements:
- 1099 income documentation or bank statements
- Proof of assets
- Some lenders may require landlord experience
- DSCR (Debt Service Coverage Ratio) may be used instead of income
Credit Scores:
Minimum: Often 640-660
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