Independent contractors with 1099 income have five main mortgage options. Conventional and FHA loans qualify you on tax returns, after write-offs. Non-QM loans skip tax returns: a 1099-only loan uses your 1099 forms, a bank statement loan uses 12 or 24 months of deposits, and a P&L-only loan uses an accountant-prepared profit and loss statement. The right fit depends on your write-offs, history and how clients pay you.
What mortgage options do independent contractors with 1099 income have?
Independent contractors can choose between agency loans that use tax returns and non-QM loans that use other income documents.
Non-QM (non-qualified mortgage) loans fall outside the CFPB’s Qualified Mortgage rules and are written to the lender’s or investor’s own guidelines instead of Fannie Mae, Freddie Mac or FHA rules. For the bigger picture on self-employed lending, see our Self-Employed Mortgage Guide.
- Conventional loan: qualifies you on one or two years of personal tax returns, using net Schedule C income after deductions.
- FHA loan: a government-insured loan that uses two years of tax returns and allows lower credit scores and down payments than many conventional options.
- 1099-only loan: a non-QM loan that uses your 1099 forms instead of tax returns, minus a fixed expense factor.
- Bank statement loan: a non-QM loan that uses 12 or 24 months of bank deposits, minus an expense factor.
- P&L-only loan: a non-QM loan that uses a profit and loss statement prepared or reviewed by a CPA, enrolled agent or licensed tax preparer.
How do conventional and FHA loans count 1099 income?
Conventional and FHA loans count 1099 income from your tax returns, not from the 1099 forms themselves. Lenders treat 1099 contractors as self-employed, so they start with the net profit on Schedule C after business expenses, then add back certain non-cash deductions such as depreciation. When income is stable or rising, they average the most recent two years; when it is declining, they may use the lower figure or not count it.
History matters too. Both programs generally look for two years of self-employment, and a shorter history of at least 12 months can work when you worked in the same or a related field before going independent. See Can I Get a Mortgage If I’ve Been Self-Employed Less Than 2 Years?
Conventional and FHA loans usually offer the strongest pricing and the lowest down payment options, so they are the first place to look when your tax returns show enough income.
“Most contractors don’t have an income problem; they have a paperwork problem. The same person can qualify for very different amounts depending on which documents the lender reads.”
— Charlie Cooper, President, Austin Capital Mortgage
How does a 1099-only mortgage loan work?
A 1099-only mortgage loan qualifies you using the gross income on your 1099 forms, reduced by a fixed expense factor, instead of the net income on your tax returns. Lenders typically ask for 12 or 24 months of 1099s plus proof the income is continuing, such as year-to-date earnings statements or recent bank statements. Because the write-offs on your return are not used, a contractor who deducts heavily can show more qualifying income. See program details on our 1099 loan page.
What are the trade-offs of a 1099-only loan?
The trade-offs are cost and cash. As non-QM loans, 1099-only programs generally carry higher rates than conventional loans and often require a larger down payment and more reserves (cash left after closing, counted in months of mortgage payments). The expense factor, minimum credit score and maximum loan-to-value vary by lender and investor.
When is a bank statement loan a better fit than a 1099 loan?
A bank statement loan is often a better fit when you are paid by many clients, through payment apps or in ways that do not all produce a 1099. Instead of forms, the lender reviews 12 or 24 months of business or personal bank statements and applies an expense factor to eligible deposits. Contractors with a handful of payers and clean 1099s usually find the 1099-only route simpler. For a deeper comparison, read 1099 vs Bank Statement Mortgage.
What is a P&L-only loan, and who uses it?
A P&L-only loan qualifies you on a profit and loss statement covering 12 or 24 months, prepared or reviewed by a licensed tax professional, without full tax return or bank statement analysis. It suits contractors whose books are kept by an accountant but whose tax returns understate income. Availability and documentation rules vary more than other options, so treat it as a narrower path.
Which mortgage option fits your 1099 income?
The best fit comes down to three questions: how much your write-offs reduce your taxable income, how long you have been self-employed and how your clients pay you. Use this table to compare the options side by side.
| Option | Income documented with | Typical history needed | How write-offs affect income | Usually fits |
|---|---|---|---|---|
| Conventional | 1 to 2 years of personal tax returns | 2 years; 12+ months with prior work in the same field | Counted at net profit after deductions, with non-cash add-backs | Two or more years in business with modest write-offs |
| FHA | 2 years of personal tax returns | 2 years; 1 to 2 years with 2+ years of prior work in the same or a related occupation | Same as conventional | Lower credit scores or smaller down payments |
| 1099-only (non-QM) | 12 or 24 months of 1099 forms | Often 1 to 2 years | Not used; a fixed expense factor is applied to 1099 gross | A few payers, clean 1099s, heavy write-offs |
| Bank statement (non-QM) | 12 or 24 months of bank statements | Often 2 years | Not used; an expense factor is applied to deposits | Many clients or app-based payments |
| P&L-only (non-QM) | CPA- or tax-preparer-prepared P&L | Varies by lender | P&L net income is used | Accountant-maintained books |
Non-QM terms vary by lender, investor and state. Rates, down payment and reserve requirements depend on credit, loan-to-value and property type.
“We run the numbers both ways before a contractor picks a loan. If the tax returns qualify, that is usually the better deal. If they don’t, we look at what the 1099s or the deposits support.”
— Charlie Cooper, President, Austin Capital Mortgage
How much more income can a 1099-only loan count?
A freelance software consultant earned $120,000 on 1099-NEC forms in each of the last two years and wrote off $45,000 in business expenses.
Her tax returns showed about $75,000 of net profit, which limited how much she could borrow on a conventional loan.
Her loan officer compared two paths. The conventional calculation used her net profit plus a small depreciation add-back. A 1099-only program used her 1099 gross income less an illustrative 10% expense factor, about $108,000 a year.
She chose the 1099-only loan and a larger down payment to reach her target price, knowing the pricing would be higher than conventional.
A 1099 contractor with $120,000 in gross income and $45,000 in write-offs may qualify on roughly $108,000 under a 1099-only loan, compared with about $75,000 using tax returns, depending on the program’s expense factor.
Scenario attributed to Charlie Cooper, President, Austin Capital Mortgage. Illustrative example; figures are rounded and details are fictionalized. Approval is subject to underwriting review and program eligibility.
Your Next Steps
- Pull your last two years of tax returns and 1099 forms, and compare your net profit to your 1099 gross income.
- Add up your write-offs to see how far they reduce your taxable income.
- Gather 12 to 24 months of statements for the account where clients pay you.
- Check your credit score and how much you have for a down payment and reserves.
- Note your self-employment start date and any prior work in the same field.
- Ask a lender to run conventional and non-QM options side by side.
Ready to move forward? A loan officer can review your full scenario and show you which documents count the most income.
Not Sure Which Loan Fits Your File?
Austin Capital Mortgage has access to 100+ lenders, so we can compare conventional, FHA and non-QM options for 1099 income in one review. Your dedicated loan officer will show you which documents count the most income for your situation.
Rates and payments vary. Non-QM loans may have higher rates and down payment requirements than conventional loans. Approval is subject to underwriting review and program eligibility. Austin Capital Mortgage is a DBA of Aspire Home Loans, LLC, NMLS #1955132. Equal Housing Lender.
