Basic Calculation
Total 1099 Income ÷ Months = Monthly Qualifying Income For a two-year average:| Year | 1099 Income |
|---|---|
| Year 1 | $180,000 |
| Year 2 | $220,000 |
| Total (24 months) | $400,000 |
| Monthly qualifying income | $16,667 |
Gross vs Adjusted Income
Most 1099 loan programs use gross 1099 income—the total shown on your forms before any deductions. This is the primary advantage over traditional mortgage qualification, where lenders use your taxable income after deductions. Some lenders apply a small expense factor (typically 10-25%) to account for unreimbursed business costs before calculating the monthly average. This is lower than typical bank statement expense factors because 1099 earners generally have fewer overhead costs than business owners.Declining Income Treatment
If your income has declined from Year 1 to Year 2, lenders handle it in one of two ways:- Average both years — Less favorable if income dropped significantly
- Use the lower year only — More conservative approach; some lenders require this
Multiple 1099 Sources
If you receive 1099s from multiple clients or companies, all eligible amounts are typically added together. You’ll need to provide all 1099 forms for the qualifying period. Income from different 1099 types is treated differently:| 1099 Type | Typically Eligible | Notes |
|---|---|---|
| 1099-NEC (contractor income) | Yes | Primary qualifying income |
| 1099-MISC (commissions, fees) | Yes | Depends on source and consistency |
| 1099-K (payment processors) | Often yes | May require additional documentation |
| 1099-INT (interest income) | Sometimes | Usually for supplemental qualification only |
| 1099-DIV (dividend income) | Sometimes | Usually for supplemental qualification only |
Bank Statement Cross-Verification
Some lenders require that 1099 income be verifiable against bank deposits—the 1099 totals should roughly align with what was deposited over the same period. Large discrepancies between 1099 income and bank deposits may require explanation. If your deposits are significantly lower than your 1099 totals (because you reinvest revenue or pay business expenses directly), be prepared to document the difference.Maximizing Qualifying Income
- Provide two full years of 1099s if your most recent year is your higher-earning year
- If your current year income is significantly higher, ask if lenders accept YTD 1099s or income projections
- Ensure all 1099 sources are included—missing a client’s form reduces qualifying income
- Ask lenders about their expense factor methodology before selecting a program