1099 mortgage loansToday's workforce is diverse, full of salaried employees, freelancers, independent contractors, self-employed individuals, and more.
Each group has its own unique form of financial stability, yet the traditional mortgage system often seems tailored primarily for those who receive their income through W2s, leaving others grappling with a system that doesn't quite fit their needs.
However, as work has evolved, flexible financing options have arisen to empower a broader range of professionals to achieve their homeownership dreams. One of these options is a 1099 mortgage loan.
So what is it, and how can you get one? That's what we're going to cover today.
What is a 1099 Mortgage Loan?
A 1099 or 1099-only mortgage loan is a distinctive type of home loan created specifically for individuals who receive their income via 1099s instead of W2s or paystubs.
Unlike other full-doc loans that require tax returns to verify proof of income, these loans allow borrowers to use their 1099's to qualify for a mortgage loan. This makes them an attractive option for those who like to take advantage of write-offs during tax season.
To determine a homebuyer's borrowing power, lenders will typically look at 1-2 years worth of 1099's from a single employer and use 90% of the total declared income; however, if an individual has consecutive years worth of 1099's from different clients/employers, those can be combined and used in a similar manner.
While this is a very enticing loan option for individuals who earn their income via 1099s, it's not for everyone. In fact, a key point to this type of loan is that the income must be paid directly to an individual, not an LLC or other business entity.
Who Is a 1099 Mortgage Best Suited For?
Since this type of loan only exists for individuals who operate with 1099s, it's a viable option for:
- Self-employed individuals
- Freelancers
- Independent contractors
- Seasonal workers
- Vendors
- Gig workers
What are the Requirements to Get a 1099 Mortgage Loan?
While there may be some variances between lenders, borrowers will typically need to meet the following requirements:
- Consistent 1099 Income: Since borrowers will use 1099s instead of tax returns to verify their income, they must have a consistent 1099 income from the same source(s) for at least the past two years.
- Reasonable Credit Score: Aside from proof of income, borrowers will need to have a credit score of at least 600.
- Documentation of Year-to-date Income: To confirm earnings, borrowers may also be required to present valid documentation showing their income for the current year via bank statements or an earnings statement.
- Down Payment: As with most mortgage products, you'll have to put between 10-20% down.
How to Increase Your Odds of Securing a 1099 Mortgage Loan
For the best chances of securing a 1099 mortgage loan with optimal rates and terms, you should aim to:
Boost Your Credit Score
Unsurprisingly, your credit score is a pivotal element that influences your mortgage application—no matter what type of loan you want to secure. Plus, the higher your score, the better your rate and terms are.
To optimize your credit score, you should:
- Pay your bills on time every month and in full when possible
- Maintain a low revolving credit utilization ratio
- Refrain from closing accounts unless absolutely essential
- Collaborate with a credit repair specialist if necessary
Prepare Essential Documentation
Being prepared is crucial in the mortgage application process. For a 1099 mortgage loan, ensure you have the following documents ready:
- Your 1099 forms from the past two years
- Bank statements
- Documentation of year-to-date income
- Any other documents that demonstrate proof of income
Work with an Experienced Lender
Navigating the unique terrain of specialized loan products such as 1099 mortgage loans requires an experienced guide.
Collaborating with a seasoned lender who is proficient in managing these types of loans can significantly simplify the process as they can:
- Provide a tailored approach, understanding your unique financial circumstances
- Offer valuable guidance and advice to improve your loan approval chances
- Assist in securing optimal rates and terms, leveraging industry knowledge and connections
At Modern Day Lending, we pride ourselves on being that experienced lending partner. With decades of experience in the field, we specialize in serving non-traditional borrowers, including self-employed individuals, investors, and others who may not meet conventional big bank requirements.
Our team is committed to delivering a smooth loan application process, combined with exceptional customer service.
We'll be there with you every step of the way, offering transparency, competitive rates, prompt approvals, and, most importantly, a dedication to helping you achieve your home ownership dreams.
Are you prepared to take the initial step toward securing a 1099 mortgage loan? Contact our team of experts, and let's make your dream a reality.
