Glossary

Key terms and definitions for self-employed mortgage programs

1

1099 Loan — A specialty mortgage that uses 1099 forms rather than tax returns to document and calculate income, designed for independent contractors and commission-based workers.

1099-NEC — IRS form used to report nonemployee compensation of $600 or more paid to independent contractors. The primary form used in 1099 loan programs.

A

Amortization — The process of paying off a loan through regular payments over time, with each payment covering both principal and interest.

Asset Depletion — A qualification method that calculates income by dividing liquid assets over a set period, used for borrowers with substantial assets but limited documentable income.

B

Bank Statement Loan — A mortgage that uses bank statement deposits rather than tax returns to verify and calculate income, designed primarily for self-employed borrowers.

C

Cash-Out Refinance — A refinance that replaces your existing mortgage with a larger loan, allowing you to take the difference as cash.

CPA Letter — A letter from a certified public accountant verifying business ownership, self-employment status, and/or expense ratios.

D

Debt-to-Income Ratio (DTI) — The percentage of your gross monthly income that goes toward monthly debt payments, including the proposed mortgage.

Down Payment — The portion of the purchase price paid upfront in cash, not financed by the mortgage.

E

Expense Factor — The percentage deducted from business bank statement deposits to account for business operating costs when calculating qualifying income.

F

Full Documentation Loan — A traditional mortgage requiring tax returns, W-2s, and pay stubs to verify income, as opposed to bank statement or other alternative documentation.

G

Gross 1099 Income — The total amount shown on 1099 forms before any business expense deductions. Some lenders use gross 1099 income rather than net taxable income for qualification.

I

Interest-Only Loan — A loan where payments cover only interest for a set period, after which payments increase to include principal.

J

Jumbo Loan — A mortgage exceeding the standard loan limit set by the FHFA, currently $766,550 in most areas—above this threshold, government-backed programs like Fannie Mae and Freddie Mac won’t finance the loan.

L

Loan-to-Value (LTV) — The ratio of your loan amount to the property’s value, expressed as a percentage. An 80% LTV means you’re borrowing 80% and putting 20% down.

N

Non-QM Loan — A mortgage that doesn’t meet standard government-backed lending rules. These loans are designed for borrowers whose income is hard to document through tax returns—like self-employed individuals—and are offered by specialty lenders rather than through programs like FHA or conventional Fannie Mae/Freddie Mac financing.

Non-Warrantable Condo — A condominium that doesn’t meet Fannie Mae or Freddie Mac guidelines due to factors like investor concentration, litigation, or insufficient reserves.

O

Occupancy Type — How you intend to use the property: primary residence, second home, or investment property.

P

PITIA — Principal, Interest, Taxes, Insurance, and Association dues—the components of a complete monthly housing payment.

P&L Loan — A specialty mortgage that uses a CPA-prepared profit and loss statement as the primary income documentation, rather than tax returns or bank statements.

Profit and Loss Statement (P&L) — A financial document summarizing business revenue and expenses over a specific period. Must be CPA-prepared to be used as primary income documentation in a P&L loan program.

PTIN (Preparer Tax Identification Number) — An IRS-issued number for tax preparers. Lenders may require the CPA’s PTIN to verify credentials when accepting P&L statements.

Q

Qualifying Income — The income amount a lender uses to calculate your debt-to-income ratio and determine how much you can borrow.

R

Rate Adjustment — An increase or decrease to the base interest rate based on risk factors like credit score, LTV, property type, or loan amount.

Reserves — Liquid assets remaining after closing, measured in months of PITIA payments.

S

Self-Employed — Working for yourself rather than an employer, including sole proprietors, LLC members, S-corp shareholders, and independent contractors.

Super Jumbo Loan — A mortgage significantly exceeding standard jumbo thresholds, typically over $2-3 million.

W

Warrantable Condo — A condominium that meets Fannie Mae and Freddie Mac guidelines, making it eligible for conventional financing.