1099 mortgage: how freelancers and contractors qualify

A 1099 mortgage is a conventional or non-QM home loan for borrowers whose primary income arrives as 1099 forms — freelancers, independent contractors, consultants, and gig workers — rather than W-2 wages. The loan itself is not a special product; the phrase describes how the lender documents your income. That documentation step is where most 1099 borrowers hit friction.

How lenders count 1099 income

For conventional and FHA loans, lenders follow Fannie Mae and Freddie Mac guidelines: two years of federal tax returns, averaged. The number they use is your net income after Schedule C deductions, not your gross 1099 receipts. If you grossed $180,000 but deducted $70,000, the lender qualifies you on $110,000 — the same income the IRS taxes you on.

Non-QM lenders offer an alternative: gross deposits. A bank-statement program averages 12–24 months of deposits and applies an expense factor (often 50%) to estimate income. A P&L-only program uses a CPA-prepared profit-and-loss statement instead of returns. Both preserve more of your gross income on paper — at a modest rate premium.

Who qualifies

• 2-year history of self-employment or 1099 income (same or related field). Some non-QM lenders accept 12 months.
• Credit: 620+ for conventional; 660+ for the best non-QM pricing; 580 minimum for FHA.
• Down payment: 3–3.5% conventional/FHA (if income qualifies); 10–20% for bank-statement and P&L programs.
• Reserves: 2–6 months of housing costs in liquid savings — more flexibility with higher reserves if income varies.
• Income trend: Rising or stable income across the two-year average is a strong signal. A declining trend will reduce the qualifying average or raise red flags.

Loan options for 1099 borrowers

The right loan depends on what your tax returns actually show. Most 1099 borrowers fall into one of two situations:

• Your tax returns show enough income: Conventional (3% down, lowest rate) or FHA (3.5% down, credit-flexible) both work. The key is that your net income — after all Schedule C deductions — produces a debt-to-income ratio under 43–45%.
• Your write-offs wipe out too much income: Bank statement loan (uses deposits, not returns) or P&L-only (CPA-prepared statement) are the practical paths. Expect roughly 0.75–1.5% above conventional rates and a larger down payment.

Compare all nine options — with sample rates and minimum down payments — on the loan types comparison page.

The write-off trap

This is the tension every self-employed borrower faces. Every dollar you deduct from business income saves you roughly 25–37% in federal taxes — but it also removes that dollar from your qualifying income. The same strategy that was smart for your accountant can make a mortgage harder to get.

There is no universally correct answer — it depends on your marginal rate, local prices, and how long you plan to stay in the home. But the decision is worth modeling before the year you apply. Talk to your CPA and, if needed, use the bank-statement option to sidestep the trade-off entirely.

How to apply

• 1. Pull your last two years of federal returns (Schedule C included) and calculate your net annual income.
• 2. Check your DTI: add up monthly debts + estimated PITI and divide by monthly qualifying income. Under 43% is the conventional target.
• 3. If net income is too low, collect 12–24 months of business bank statements and get a CPA letter estimating your expense factor.
• 4. Estimate your maximum home price with the affordability calculator.
• 5. Compare conventional, FHA, and non-QM lenders side-by-side — a rate premium that costs you $200/mo might be the difference between buying now and waiting years.

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