What is a 1099 Loan

An overview of 1099 mortgage programs for independent contractors and commission-based workers

A 1099 loan is a specialty mortgage that uses 1099 forms—rather than tax returns—to document and calculate income. These loans are designed for independent contractors, commission-based workers, and freelancers who receive 1099s instead of W-2s.

Why 1099 Loans Exist

Independent contractors often deduct significant business expenses: home office costs, vehicle use, equipment, professional fees. These deductions reduce taxable income, which in turn reduces what a traditional lender will qualify them for—even if their gross 1099 earnings are strong.

A 1099 loan looks at gross 1099 income before those deductions. If your 1099s show $200,000 in earnings and your tax return shows$80,000 after deductions, a 1099 loan qualifies you closer to the $200,000 figure.

How It Works

The lender collects your 1099 forms—typically one or two years’ worth—and calculates qualifying income from the gross amounts shown. Depending on the lender:

• Some use 100% of 1099 income directly
• Some apply a modest expense factor (10-25%) to account for unreimbursed business costs
• Some cross-reference 1099 totals against bank statement deposits for additional verification

The resulting figure is used for debt-to-income ratio calculations, just like income on any other mortgage.

Who Issues 1099s

1099-NEC forms are issued to contractors when a business pays them $600 or more in a year. You may receive multiple 1099s from different clients. The lender typically adds them together.

1099-MISC forms cover other types of income (rents, royalties, commissions) and are also eligible depending on the source.

1099 Loans vs Bank Statement Loans

Factor	1099 Loan	Bank Statement Loan
Income source	1099 forms	Bank deposits
Best for	Contractors, commission workers	Business owners
Expense adjustment	Minimal (0-25%)	Varies (10-50%+)
Documentation	1099s + self-employment proof	12-24 months of statements

Some borrowers qualify under both programs. When that happens, it’s worth calculating which yields higher qualifying income.

Common Misconceptions

“My 1099 income is too irregular.” Lenders expect some variation. What matters is the two-year average or trend. A lender may use a 24-month average to smooth out year-to-year differences.

“I need to show two years of 1099s.” Most programs require two years, but some will accept one year with compensating factors like a higher credit score or larger down payment.

“1099 loans are the same as bank statement loans.” They’re different products. 1099 loans use your form totals; bank statement loans use deposit activity. Some lenders combine both for additional documentation.