1099 Income: How Underwriters View 1099 Income Versus W-2 Income

If you are self employed, work as an independent contractor, or your employer classifies you as a 1099 employee, you will have a tougher time in qualifying for a residential mortgage loan than being a W-2 wage earner.  Mortgage lending guidelines require two years 1099 income and tax returns for self employed mortgage loan borrowers.  For example, if you are showing good 1099 income for the past six months and had a W-2 paying job prior to that,  the chances are that you will not qualify for a residential mortgage loan due to the two year mandatory requirement to provide 1099 income.   On the flip side, if you are a W-2 employee and have been a W-2 employee for the past 30 days and can provide 30 days paycheck stubs and a verification of employment but have been a 1099 income wage earner prior to your W-2 job, you WILL qualify for a residential mortgage loan.  However, if you have had a period of unemployment of 6 months or longer, than you will need six months work of work history.  Any periods of unemployment of six months or shorter, only a 30 day paycheck stub will be required.

Cases Where Only One Year 1099 Income Is Required: Freddie Mac

Fannie Mae will always require two years of 1099 income per DU FINDINGS to be eligible for an automated approval via the Fannie Mae’s Automated Underwriting System.  However, Freddie Mac will accept only one year 1099 per LP FINDINGS via Freddie Mac’s Automated Underwriting System if the mortgage loan applicant is a strong borrower.  By a strong borrower, the mortgage applicant shows a strong income, larger down payment, plenty of reserves, multiple aged credit tradelines,  and other compensating factors.  For example, if a mortgage applicant who is a 1099 employee and has a 740 plus credit score, 20% down payment, 5 credit tradelines, and $30,000 plus of reserves, this mortgage applicant will most likely get an approve eligible per LP FINDINGS with only one year 1099 income and one year tax returns required whereas a mortgage applicant with a 620 credit score, 5% down payment, 1 credit tradeline, and no reserves will most likely not get a one year 1099 and/or tax return approval.

Going From 1099 Income Versus W-2 Income

As mentioned earliear,  it is much tougher to qualify for a residential mortgage loan for 1099 income versus W-2 income.  The difference between a 1099 income versus W-2 income earner is that a 1099 income earner  will be required two years 1099 income history in order to qualify for a mortgage loan.  1099 income versus W-2 income mortgage loan applicants will need to also provide proof that their 1099 income will likely to continue for the next three years.

1099 Income Versus W-2 Income: Going From 1099 Income To W2 Income

If you have worked as a 1099 wage earner but have changed to W-2 income earner, only 30 days of pay check stubs will be required plus a verification of employment.  As long as you did not have more than a six month gap in employment and have changed jobs from a 1099 wage income earner to a W-2 wage income earner, only 30 days of paycheck stubs will be required.

Gustan Cho


The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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