1099 Mortgage
Understanding 1099 Mortgages: A Guide for Self-Employed Borrowers
Traditional home loans, such as Conventional, FHA, VA, Jumbo, and USDA loans, often pose challenges for applicants who earn their income through 1099 wages. These types of loans typically rely on the taxable portion of the applicant's salary for qualification, which can be limiting for those who are self-employed or have non-traditional income streams.
What is a 1099 Mortgage?
A 1099 Mortgage, also known as a self-employed mortgage, is designed to meet the needs of individuals who may not have the standard documentation used to verify income, such as W-2s or extensive tax returns. Instead, these borrowers can qualify for a mortgage based on 1-2 years of 1099 income documentation.
This type of mortgage is ideal for entrepreneurs, freelancers, small business owners, and other self-employed individuals, offering the opportunity to secure a mortgage at competitive rates without the typical hurdles associated with proving income through traditional means.
Can 1099 Workers Qualify for Mortgages?
The short answer is yes. However, the process requires a bit more than just providing your 1099 forms. The first step in securing a mortgage as a 1099 employee is prequalification. This can often be done by contacting your bank or filling out an online questionnaire with basic information from your Form 1099 income report, along with details about your debts and assets. This initial step gives you an estimate of how much you may be able to borrow to purchase your home.
Key Features of 1099 Mortgages
- Low Down Payment: Less than 10% down payment required.
- Flexible Income Calculation: Tailored to accommodate varying income streams.
- Flexible Credit Score Requirements: Accepts credit scores as low as 620.
- Reserves: The required reserves depend on factors such as credit score, loan-to-value ratio (LTV), and loan amount.
Reserve Requirements:
- For loan amounts up to $1.5MM with a FICO score of 680 or higher: Max 90% LTV with 6 months of PITIA reserves.
- For loan amounts between $1.5MM and $3MM with a FICO score of 660 or higher: Max 75% LTV with 12 months of PITIA reserves.
- For loan amounts between $100,000 and $1.5MM with a FICO score of 700 or higher: Max 85% LTV with 3 months of PITIA reserves.
- For loan amounts between $100,000 and $1.5MM with a FICO score of 660 or higher: Max 80% LTV with 3 months of PITIA reserves.
- For loan amounts between $100,000 and $1.5MM with a FICO score of 620 or higher: Max 75% LTV with 3 months of PITIA reserves.
Additional Benefits
- Gift Funds: Funds from a family member are permissible, provided the borrower contributes at least 5% of the purchase price and reserves from their funds.
- Interested Party Contributions (IPCs): Up to 6% of the purchase price can be covered by credits from sellers, real estate agents, builders, etc. For investment properties, the maximum contribution is 2% of the purchase price.
- Occupancy Options: Eligible for owner-occupied, second/vacation homes, or investment properties.
- Eligible Home Types: Single-family homes, townhomes/villas, 2-4 unit multi-family residences, and condominiums (both warrantable and non-warrantable).
1099 Mortgages provide a valuable opportunity for self-employed individuals to secure financing tailored to their unique income situations, making homeownership more accessible without compromising on the quality or terms of the loan.
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