Millions of Americans work for themselves, including freelancers, independent contractors, gig workers, seasonal workers, and small business owners. Many earn a good living but run into trouble when they apply for a traditional mortgage.

Why self-employed borrowers get stuck

Traditional (qualified mortgage) underwriting leans on steady employment, regular paychecks, and the taxable income shown on your tax returns. That works well for W-2 employees. But if you're paid on a 1099, business write-offs can lower your taxable income on paper, even when your real cash flow is strong.

What is a non-QM loan?

Qualified mortgages follow standards set after the 2008 housing crisis, including rules from the Dodd-Frank Act. Non-QM loans are an alternative for borrowers who don't fit that mold, such as self-employed borrowers, real estate investors, and foreign nationals. Instead of relying only on tax returns, they verify income in other ways, such as bank statements and 1099s.

Because these loans carry more risk for lenders, they typically come with lower loan-to-value limits, higher interest rates, and stricter credit requirements than conventional loans.

Who a 1099 loan may fit

• Freelancers, independent contractors, and gig workers
• Self-employed borrowers whose write-offs reduce their taxable income
• Business owners who can show steady income through 1099s and bank statements

Typical qualifying guidelines

Guidelines vary by program, but lenders often look for:

• A credit score of 620 or higher
• A debt-to-income ratio of 50% or less
• At least 50% of your income coming from 1099 work
• One to two years of self-employment, depending on the loan
• Income that is consistent and profitable enough to support the payment, even if it varies from month to month

Documents you may need

• Your most recent 1 or 2 years of 1099s
• Year-to-date income documentation
• Bank statements or check stubs dated within 120 days of the note date
• 1099 transcripts (full tax transcripts are not required)
• Verification of 2 years of employment history, such as a written verification of employment or a letter from your CPA
• Supporting items such as a business license, business insurance, or professional memberships

Ways to strengthen your application

• Keep business and personal expenses in separate accounts
• Keep credit card balances low
• Gather your 1099s, bank statements, and CPA letters before you apply
• Work with a lender that handles non-QM loans regularly

Bottom line

Homeownership is within reach for many self-employed borrowers. Success comes down to knowing the requirements, having your documents ready, and working with a lender experienced in non-QM loans.

Learn how these loans work here, or reach out and our team will review your income and walk through your options.

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Guidelines shown are typical examples and vary by lender and program. This is general information, not a loan commitment.