1099 Loans

1099 loans are typically used for independent contractors or freelancers who get 1099s at the end of the year and cannot qualify based on traditional tax returns income. These loans are particularly suitable for freelancers, contract workers, 1099 employees, and other borrowers with non-traditional income sources.

Traditional mortgage applications require self-employed borrowers to provide W-2 forms or tax returns as proof of income. However, for self-employed individuals or those with variable income, these documents may not accurately reflect their financial situation. Bank statement loans offer an alternative approach by allowing borrowers to demonstrate their income through bank statement deposits.

1. Documentation: Instead of providing W-2 forms or tax returns, borrowers are required to submit their 1099s for a certain period, typically 12 to 24 months.

2. Income calculation: Lenders will average out the income from the 1099s over two years.

3. Eligibility requirements: Borrowers must meet certain criteria to qualify for 1099 loans. These requirements may include a minimum credit score, a specific debt-to-income ratio, and a demonstrated ability to repay the loan.

4. Interest rates and terms: 1099 loans often have higher interest rates compared to traditional mortgage loans. The specific terms, rates, and fees will vary depending on the lender and the borrower’s financial profile. It’s important to shop around and compare offers from different lenders to find the most suitable terms.

5. Down payment and loan-to-value (LTV) ratio: The down payment and LTV ratio for 1099 loans can also vary. Typically, lenders require a larger down payment and may limit the LTV ratio to reduce risk.

1099 loans may have more flexible underwriting standards compared to traditional mortgages, allowing self-employed, freelancers, and 1099 borrowers with non-traditional income sources to qualify for a loan. However, because they are considered non-QM loans, they may have stricter requirements and potentially higher costs than traditional mortgages.