Can I Buy a House With 1099 Income?

How hard is it to get a mortgage with a 1099 income?

As long as you have stable income, it’s not hard. Lenders just want to see that you’re making enough money to pay back the home loan. You could be a freelancer, small business owner, seasonal gig worker, or a mix of everything. As long as you’re making that consistent money, they don’t really care about where that money is coming from.

Lauren Ward, a writer who purchased her house on her freelance income, had some good news: “I didn't really think it was that much harder than having W-2 income, just extra tax docs and some extra income verification at the end.”

Ward, who has bought multiple homes using 1099 income, acknowledged that it was harder to qualify for a home post-COVID than it was pre-COVID but said the process was very similar. 

How do tax breaks affect your ability to get a mortgage?

Mortgage lenders only consider net income when you’re applying for a mortgage. So if you bill your clients for $50,000 throughout the year, but deduct $19,500 in business write-offs, the lender is only going to look at the $30,500 you have left over. 

A lot of business owners use tax shelters — like those business write-offs, plus S corp status — to shield their money. This means you might be making a lot in gross income, but on paper, it’s less. And your net income is what mortgage lenders look at. 

Should you avoid taking write-offs before buying a home?

Maybe. Depending on how much house you’re looking to buy, you might want to purposefully avoid claiming all the tax breaks you’re entitled to in the two years leading up to your purchase. That way, the banks see you’re making enough for the home you want.

Use Keeper to track your tax deductions throughout the year, and you’ll know exactly how much you’re claiming. The app gives you an updated tally of your write-offs to date, so you can quickly figure out exactly how much net income you have to show the banks and make sure you’re not taking a loss on paper.

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If you decide not to write something off, it’s easy to mark it as a personal expense inside the app. That way, you can make sure you have enough taxable income to qualify for a house.

How do sudden windfalls affect your ability to get a mortgage?

Unfortunately, mortgage lenders don't always take windfalls into consideration if they're not representative of our income trajectory as a whole. So while they’re exciting, keep in mind that you can’t always count toward your qualifying income when it comes to buying a home.

Ward, who previously bought a house with only W-2 income, found that out firsthand: “We had to submit our two most recent tax returns instead of pay stubs. The lender used the average of those two years…. So if you had a huge income spike in your most recent year of business, you won't automatically be able to use that full amount to buy a more expensive house.“

How many years of 1099 income do you need to buy a house?

Lenders want to see steady income for at least two years before you buy your house. This will be reflected in the documents they ask for.

What forms will you need to get a mortgage?

Candidly, you’ll need quite a few forms in order to qualify for most loans (though there are some exceptions — more on those later). When I was putting in my mortgage application, the lender wanted the following documents from the past two years:

• My tax returns
• My 1099 forms
• The couple of W-2s that I had
• My last three months of bank statements
• A record of my business financials, including a balance sheet and profit and loss statement

Additional documents you might be asked for

If you have a business license — which I don’t have — they’ll want that as well. If you’re receiving any monetary donations, like a down payment from a relative or a friend, they’ll also want to see the gift letter. 

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What other factors do lenders consider when deciding if you qualify for a mortgage?

Having enough income isn’t the only thing that the banks look for. They’re also going to consider your:

• Credit score
• Credit history
• Debt-to-income ratio
• Liquid savings and assets

Even if you have proper documentation for your income, you could still be turned away if you don't meet these different criteria.

Credit score

What to aim for: 580-620

For a conventional loan, you typically need a credit score of 620. But different types of loans have different credit requirements.

For example, my loan is an FHA loan, which is used for primary residences. It only required me to have a 580 credit score. 

Some mortgages specifically for 1099 workers can require higher credit scores, but will ask you for less income documentation in exchange. (More on those later.)

Credit history 

What to aim for: A history of on-time payments

Banks want to know how you’ve handled money in the past. Your credit history is a good indication of that. 

Mortgage lenders want to see a good payment history, with few delinquencies, but there are workarounds. For example, I did not have that. But my loan officer had me write a letter essentially explaining why three of my accounts were closed the same month. That helped me get a loan.

You’ll want to listen to your loan officer’s advice if you’re on the verge of being able to apply for a loan, but have concerns because of your credit history. They can help you brainstorm solutions.

Debt-to-income ratio

What to aim for: 35%

Your debt-to-income (DTI) ratio is also extremely important to creditors. They want to know about your ability to take on additional debt.

Just as an example, I make $46,500 at my day job, which translates to a monthly income of $3,875. And including rent, I pay $772 a month toward my debt. So my debt-to-income ratio — before taking my self-employment income into consideration — would be $772 divided by $3,875, or 20%. 

Try to keep your DTI under 35%. After that point, you’re less likely to get the loan — even if all your documentation is in order. 

Liquid savings and assets 

What to aim for: At least 3.5-5% of the purchase price saved up

In addition to your ability to take on a monthly mortgage payment, lenders also consider whether you can handle the down payment and closing costs. If you don’t have enough money for those, you’re not going to get the loan. 

Most mortgage loans require somewhere between 3.5% and 5% minimum to cover both your down payment and closing costs, but some require as much as 10% down. It depends on the loan you’re trying to get. (You can often put less down if you have a higher credit score.)

Bottom line: Start budgeting before reaching out to a loan officer. 

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What kinds of loans can self-employed homebuyers apply for?

As an independent contractor, you can still apply to all the same loans that traditionally employed people apply to, including conventional mortgages, FHA loans, and VA loans. But there are lenders out there who work specifically with self-employed borrowers, with different requirements for proof of income.. 

How are 1099 home loans different?

These loans generally require less documentation of income than traditional home loans. Some allow you to apply with 1099 forms or bank statements instead of tax returns. (These are called “bank statement loans.”)

As a tradeoff, though, loans specifically for 1099 workers might come with different — sometimes more stringent — requirements. For instance, mortgage lender Angel Oak offers a loan for self-employed borrowers that requires a 660 credit score instead of the usual 620.

These loans are popular with individuals in the self-employment community because they cater specifically to our needs as mortgage applicants and recognize the unique situation we're in.

Can you buy a home with a mixture of 1099 and W-2 income?

Yes — just expect your side hustle income to be scrutinized a lot more heavily than your day job earnings. 

Freelance marker and finance content creator Vee Weir, of Vee Frugal Fox, who bought her first house with her husband, experienced this dynamic as a couple: she’s fully self-employed, while her husband has W-2 income. 

The mortgage process required Weir to put together 40-some-odd documents. “They left no stone unturned,” she said. “If I bought a pen they wanted to know about it.” Her husband’s side of things was easier: He just had to verify income and employment. 

I asked Weir if they vetted his income just as thoroughly. She said, “I definitely felt like it was more scrutinized on my end. They wanted to make sure my business wasn’t a loss and I actually worked.”

Can you get a mortgage with a partner if you’re self-employed?

The answer is yes, you can. In fact, having a co-borrower with W-2 income — whether they’re a partner, family member, or friend — is one strategy that self-employed people can use to get a loan even if business isn’t going as well.

How do you apply for a mortgage with a co-borrower?

Just like qualifying for a mortgage alone, you’ll need to have all your statements ready to go. Your co-borrower will also need to meet the lender's credit requirements. 

When it comes to income requirements, though, you have some wiggle room.

What should you do if one co-borrower doesn’t meet the income requirements?

If you’re buying with a co-borrower, you can choose to only show one person’s income.

This is helpful if one of you owns a business that’s operating at a loss. Those business losses might help shelter you from taxes. But, as mentioned, they’ll reduce the amount of money the lender thinks you make. That could put you in danger of not qualifying for a mortgage. 

How do you increase your chances of getting approved for a mortgage? 

You might have to adjust some aspects of your financial life in order to be able to buy a house. Listen to your loan officer and see what they say about the changes you can make to your financial profile. These might include:

• Paying down credit card debt
• Tracking down accounts in collections that are affecting your credit score 

For example, I had to work with my loan officer to fix my debt-to-income ratio and raise my credit score. The process has taken several months, but we’re almost where we want to be. You might have to do the same thing. 

Buying a home on 1099 income isn’t impossible. On the contrary, plenty of people have successfully bought homes as freelancers, business owners, and independent contractors. While there might be a bit more paperwork involved, your dream home is within your grasp.