Self-employed individuals don’t receive a typical W-2 to report income and show withheld taxes. This crucial IRS form is instead replaced by some type of 1099 income-reporting form that must be issued by the business owner. The first thing most people think of for self-employed individuals are small business owners and freelancers, but there are plenty of others that fit in the same category. And when someone who finds an alternate way to generate income needs to borrow money to buy a home, it’s a 1099 mortgage they’re looking for.
Unfortunately, applying for a mortgage with 1099 forms in hand is far from a guarantee. Without the assurance that an individual is gainfully employed, borrowers often find themselves left in a lurch as banks prefer to deal with traditionally qualified applicants looking for home loans.
MBANC is a lender that intentionally serves this sector of the economy by making it easy to apply for mortgage programs with 1099 employee forms. What does it look like to apply for a 1099 mortgage compared to a traditional FHA loan or bank mortgage?
What a “normal” mortgage application looks like
As mentioned, a normal home loan program that serves your traditional American workforce employee requires a W-2 wage and tax statement. In addition, the bank requires multiple other documents that help them determine if you have the monthly income to support the size of the loan you’re requesting. What’s more, the loan officer and underwriter will look at your credit score and credit report to get a complete picture of your trustworthiness to repay the loan.
Most traditional mortgages are FHA loans that the lender re-sells to GSEs like Freddie Mac and Fannie Mae. Since the bank doesn’t intend or want to hold your mortgage long-term, your application needs to tidily fit into their criteria including the debt-to-income ratio, loan-to-value ratio, and a cap on borrowed funds.
To apply for a normal mortgage, you’ll need to provide:
- Pay stubs from the past 30 days
- W-2s
- Bank account balances
- Between one and three years of income tax returns
- Other assets and liabilities you may have
- Proof of any other taxable income sources
- Details on credit card balances and outstanding loans
- Information on the property itself
- Proof of identity
Rest assured, the lender or the underwriter will verify the information you provide.
What a 1099 mortgage looks like
For self-employed individuals, some of the details above simply don’t fit. They won’t have pay stubs or W-2s to show employed income, and their tax returns are often optimized to reflect the lowest income possible to prevent paying high tax rates. In many cases, that eliminates the possibility of approval for an FHA loan.
But for a 1099 mortgage with MBANC, the criteria are easy to manage because they aren’t connected to a GSE’s stringent rules. Instead of tax returns and bank statements, it’s possible to be approved with 1099 forms only.
With as little as two calendar years of 1099’s, we can verify your income as filed with the IRS. While you’ll need to have at least six months of cash reserves on hand, the criteria to get approved are much more manageable with MBANC than with any traditional bank or credit union.
Who gets a 1099?
Wondering if this applies to you? People who file 1099s can include independent contractors, freelancers, real estate agents, small business owners, and contract workers in the gig economy, for example. A 1099-NEC is required by anyone who earns more than $600 in a year outside of an employee role.
Why choose MBANC
At MBANC, we’d be happy to refer you to previous clients who have benefited from a 1099-only mortgage. We make it easy to apply with flexible terms and repayment options that never take advantage of your situation, and you’ll be dealing with real people instead of automated computers and checkboxes. Even better, most of our applications reach a close in 30 days or less.
Apply for a 1099 mortgage today with MBANC. You’ll be so glad you did.