How lenders count 1099 income
1099 income is treated as self-employment. Underwriters ignore your gross 1099 receipts and instead use your net profit after expenses — Schedule C line 31 for sole proprietors, or the K-1 ordinary income if you filed as an LLC.
They average two years of net profit, then add back non-cash items like depreciation, home-office, and business-use-of-vehicle mileage. If year 2 is lower than year 1, they use the lower year, not the average.
Write-offs vs qualifying income — the tradeoff
Every $10,000 you write off saves ~$2,500 in taxes but costs roughly $30,000 in home-buying power. In the 12–24 months before applying, moderate your deductions.
If your last two returns are already filed, a bank statement loan may work better than trying to re-file. These programs qualify you on 12–24 months of deposits with an assumed expense factor (usually 50%). Rates run 1–2% above conforming; down payment is 10–20%.
Documentation checklist for 1099 buyers
- Two years of signed personal tax returns (all pages + all schedules)
- Two years of signed business returns if you have an S-corp, partnership, or LLC filing as an entity
- Year-to-date profit-and-loss statement, signed
- Current business license (if applicable)
- Two months of business + personal bank statements
- 4506-C IRS transcript authorization (you'll sign, lender pulls)
Is this path right for you?
Frequently asked questions
Do 1099 contractors need 2 years of history?
Usually yes. Fannie/Freddie can allow 1 year of 1099 if you have 2+ prior years as a W-2 employee in the same line of work.
Can I use my gross 1099 receipts to qualify?
No — lenders use net profit after business expenses. This is why heavy write-offs hurt buying power.
What's a bank statement loan?
A non-QM program that qualifies you on 12–24 months of deposits instead of tax returns. Down payment 10–20%, rate 1–2% higher, FICO 660+.
Do I need a business license?
Only if your state requires one for your work. Most solo 1099 contractors do not.
Related guides
- The Complete First-Time Homebuyer's Readiness Guide
- How much home you can actually afford
- Pre-approval checklist
- Back to the Knowledge Base
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