1099 Income Loans: Mortgages for Independent Contractors

If you are an independent contractor, you likely take advantage of IRS rules to deduct mileage, home office expenses, meals, and equipment from your gross income. This is a smart tax strategy, but it is fatal for a Conventional or FHA mortgage application.

Standard underwriters look exclusively at your "Net Income" (the bottom line on your tax returns). If you gross $150,000 but write off $70,000, the bank calculates your income at $80,000, instantly disqualifying you for the home you actually afford. The 1099-Only Loan completely eliminates the tax return from the underwriting process.

Because you are an independent contractor, the lender still assumes you have *some* expenses. However, instead of digging through your personal receipts or looking at your bank withdrawals, they apply a standard, mathematically fixed Expense Factor directly to your 1099 gross amount.

The 10% Expense Ratio Advantage

Unlike Bank Statement Loans—which often penalize borrowers with a heavy 50% expense ratio—the 1099-Only loan is designed for gig workers and consultants who have very low overhead. Most programs apply a flat 10% to 25% expense factor.

• Example: You provide a 1099 showing you earned $120,000 last year.
• The lender applies a 10% expense factor ($12,000).
• Your qualifying income is locked in at $108,000 per year ($9,000 per month).
• It does not matter if your actual tax returns show you wrote off $50,000. The underwriter never sees the tax return.

Verifying Year-to-Date (YTD) Income

Because 1099 forms are only issued once a year (in January), the underwriter needs to verify that your income hasn't fallen off a cliff since your last 1099 was issued. To do this, they will typically ask for a YTD earning statement from your employer/contractor, or a few recent bank statements to verify that deposits are still consistently hitting your account.

To use this highly specialized Non-QM program, you must fit the specific profile of an independent contractor.

Who Qualifies?

You must receive your income via IRS Form 1099. This program is perfect for:

• Real Estate Agents and Brokers.
• Independent IT Consultants and Freelance Writers.
• Truck Drivers and Owner-Operators.
• Gig Economy workers (Rideshare, Delivery, Contract labor).

The Strict W-2 Rule: If you receive a W-2 AND a 1099, you cannot combine them in this program. This program is exclusively for borrowers who derive the primary bulk of their qualifying income from 1099s. Furthermore, you cannot use this program if your income is reported on a K-1 (you must use a Bank Statement Loan instead).