In this article, we will cover 1099-Income-Only Mortgages and how they work. Many workers are 1099 wage earners. 1099 wage earners have specific mortgage income guidelines regarding government and conforming mortgage loans. In general, FHA, VA, USDA, Fannie Mae, and Freddie Mac will require two years of income tax returns from 1099 wage earners.
The adjusted gross income on the income tax returns has been average for the past two years. Adjusted gross income is the total 1099 income less the unreimbursed business expenses. Most 1099 wage earners have difficulty qualifying for a mortgage with 1099 income since they take the tax loophole they are allowed to be 1099 wage earners. In the following paragraphs, we will cover getting approved for 1099-income-only mortgages at Gustan Cho Associates.
Why Do 1099 Wage Earners Have a Difficult Time Getting Mortgage?
Using the federal tax loophole in writing off unreimbursed business expenses often leads to 1099 wage earners not being able to qualify for a mortgage. Independent contractor wage earners often have a difficult time qualifying for traditional conforming mortgage loans. FHA, VA, USDA, and conventional loans are traditional conforming mortgage loans that use standard income qualification when it comes to processing income and debt-to-income ratio. Now with the launch of 1099-income-only mortgages, independent contractors who earn 1099 income can now qualify for a mortgage without income tax returns.
How Is Income Calculated By Underwriters on 1099-Income-Only Mortgages
1099-Only-Income Mortgages just uses the borrower’s 1099-income only. Independent contractor wage earners can now qualify using 1099 income. The way the 1099-income-only mortgage works is lenders will take 90% of the past 12 or 24 months 1099 income. Income tax returns are not required. There are two different types 1099-income-only mortgages. The first 1099-income-only mortgages goes by 90% of the borrowers past 12 month of 1099 income. Tax write offs are not taken into consideration. The second 1099-income-only mortgages requires two years of 1099 income. 90% of the past two years is averaged and that resulting average will be used as the gross income.
What are 1099-Income-Only-Mortgages and How They Work?
Are you an employee earning 1099 wages or an independent contractor who has been trying to apply for a mortgage but has been denied simply because you didn’t provide your tax returns? If you are, we have a solution for you, which we will tell you shortly. First, you should know why they have been denying you a mortgage. The truth is, when it comes to traditional home loans, they are not meant for individuals earning through 1099 wages, given that they are restricted to using only the taxable option of the income.
1099-Income-Only Mortgages With No Income Tax Returns
Since 1099 employees’ taxable incomes are substantially reduced, lenders simply don’t think these borrowers have the ability to make their monthly payments. And so, a big majority doesn’t qualify; if they do, they are taken through a very frustrating process. Now, this is what led to the introduction of a loan product designed for these individuals, known as 1099 statement loans. This article will tell you what these loans are, how they work, and how you can apply for one. So, keep reading to find out:
What Are 1099-Income-Only Mortgages?
In simple words, a 1099 statement loan is a loan product that’s designed for borrowers with 1099 wages or, basically, those who use 1099 forms rather than their tax returns, pay stubs, W2s, or any other documents to apply for a mortgage. Essentially, 1099 statements are used to prove the borrower’s income. This means rather than examine your tax returns, lenders just need to check this statement to establish whether you qualify or not.
What Is Required For You To Qualify For 1099-Income-Only Mortgages
In this section, we will cover on what is required for you to qualify for these loans. For starters, for you to qualify for these loans, you are required to be working at the same business for over two years. Now, when determining your average income, you will find some lenders calculate it based on a 2-year 1099 average, while others do it on the most recent year’s 1099.
Two Year 1099-Income-Only Mortgages
Looking at the two-year approach, a borrower is required to provide their 1099 statements for the most recent two years. The total amount is then divided by the 24 months. Your employer will also have to prove that you have been working for a minimum of two years and that you currently don’t have any mandatory job-related expenses. You will also be required to provide bank statements. As for the one-year 1099 approach, you just need to divide the most recent 1099s by 12 months instead of 24. This is done to help determine your income and also the amount of home loan you can qualify for.
What Are Terms if 1099-Income-Only Mortgages
In this section, we will cover what are some of the terms for 1099-income-only mortgages. In terms of the property types, you can use these mortgages to buy properties like single-family homes, townhomes, condos, and even multi-family 2-4 units. The amounts you qualify for range anywhere between $75,000 and $3 million.
When it comes to the term, you will get 30-year fixed-rate loans and 5 & 7-year ARM. These loans are readily available for anyone who qualifies, from individuals, trusts, limited partnerships, and corporations. You can use the loan either to purchase a property or refinance an existing mortgage.
How To Apply For 1099-Income-Only Mortgages
In this section, we will cover how to apply for a 1099-income-only mortgages. We have to point out that the process of applying for a 1099 loan varies from lender to lender, so we can’t give you the exact steps that you can follow. However, there are some standard steps you can follow, which apply to most lenders in the country. They are as follows:
Here Is The Loan Process For 1099-Income-Only Mortgages
Step 1 – find a reputable mortgage broker:
The very first step in applying for a 1099 mortgage is finding a mortgage broker who will, in turn, help you in getting a good deal. Different lenders offer different loan terms, so you need to find the most favorable one for you. Of course, by this point, you have searched for the property you intend to buy, which also means that you know how much you will spend on it. This gives you an idea of how much you need to apply for.
Step 2 – then, you need to submit an application:
You can do this physically or online. Remember to include all the documents needed, from your 1099 statement, bank statement, documents that show you have been working for the last two years, and other documents that the lender will request from you. Once you’ve successfully submitted your application, you just need to wait until you receive an update on your application, which would mostly be sent in a few hours or days.
Step 3 – review documents:
Once everything has been submitted, received, verified, and approved, you will receive a promissory note to sign. After signing, the money will be released to your account, which takes about 2 to 3 days.
Step 4 – once you receive the cash, all that’s left is for you to make your required payments:
Now, one good thing about 1099 loans is that should you choose to make repayments ahead of time, you can do so without being charged a prepayment penalty. It’s a pretty good deal!
Types of Borrowers Who Can Benefit From 1099-Income-Only Mortgages
As we mentioned from the start, not everyone can take up these loans. They are designed for borrowers with multiple sources of income, which is inconsistent in terms of the amount and the time you earn it. These people include”
- Business owners
- Mortgage Loan Originators
- Real Estate Agents
- Independent contractors
- Seasonal workers
- Gig jobs
- Any other low-wage workers in the economy.
Also, two years of employment or self-employment is required for you to qualify for these loans. But what happens if you haven’t attained two years on your job yet, but you still want the loan? In that case, depending on the lender you are dealing with, you may need to provide a written statement, justifying the stability of your income, which is what informs the lender of your ability to make monthly payments.
Best Lenders For 1099-Income-Only Mortgages
In conclusion, 1099 loans can be a great option for self-employed individuals who have difficulty obtaining traditional home financing. They offer flexible terms and often require less paperwork than conventional loans. However, it is important to keep in mind that the interest rate on these loans will typically be higher than a traditional loan. Additionally, some lenders may require that the borrower have an excellent credit score in order for them to consider the loan. 1099 statement loans are readily available across the country, and applying for them is pretty easy and quick. You just need to find the right lender.