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Not every borrower fits the traditional W-2 mold, and 1099 mortgage loans give brokers a way to qualify the ones who don’t.
Suppose a freelance borrower comes to you. He doesn’t receive a regular paycheck and has no W-2. Instead, his income is reported on a 1099-NEC. What do you offer him?
Your first instinct is probably standard Full Doc. You look at the business expenses he writes off and see: for Full Doc, they’re too high, and what’s left as qualifying income is too low.
The 1099 loan program is often the answer. To qualify the borrower, lenders don’t usually analyze his actual Schedule C expenses. Instead, they apply a flat 10% expense factor. The remaining 90% counts as qualifying income, which improves his odds.
From this article, you will learn:
Why a 1099 loan counts as a Non-QM loan, and what that changes for your borrower’s rate and terms.
Which self-employed borrowers, from independent contractors to gig workers and truck owner-operators, actually fit the 1099 program, and why their documentation challenges differ.
How gross or net income affects the way you structure a file for a self-employed borrower.
Also, you will find out how to structure the file for the six situations that trip up most submissions and how to avoid asking your borrower to provide additional documentation for nothing.
What is a 1099 Mortgage Loan?
A 1099 mortgage loan is a Non-QM loan that qualifies a borrower using IRS Form 1099 for income verification, rather than two full years of tax returns.
AD Mortgage’s own 1099 loan program, for example, allows self-employed individuals and contract borrowers to use their 1099 forms and year-to-date income documentation to qualify for a mortgage, with loan amounts up to $4 million.
Keep in mind that there’s a difference between applying for a 1099 program and using 1099 income on other programs – for example, conventional.
A 1099 loan qualifies a borrower purely on 1099 totals and a lender-applied expense factor, without traditional tax returns.
Using 1099 income on a conventional loan or an FHA loan requires two full years of filed self-employment tax returns, with the net profit left after business expenses, not the gross 1099 total, driving qualifying income.
‘Because 1099 loans don’t meet agency (Fannie Mae/Freddie Mac) documentation standards, they fall under the Non-QM category. As a result, borrowers should generally expect somewhat different terms than on a conventional loan, including higher interest rates and a lower maximum LTV,’ explains Anastassiya Materova, Senior Underwriter at AD Mortgage.
Who Uses 1099 Loans and Which Path Fits
In 2026, independent contractors, sole proprietors, seasonal workers, and other self-employed individuals typically qualify with 1099-NEC and 1099-K forms. Since 2020, 1099-MISC form has covered non-work income types like rent, royalties, and legal settlements, none of which reflect earned, ongoing self-employment income lenders can qualify a borrower on.
Common 1099 borrower types, the form each typically receives, and the documentation challenge tied to it.
Borrower Type
Typical Form
Typical Documentation Challenge
Independent contractors
1099-NEC
Borrowers often work with several clients at once, so income comes in as multiple 1099-NECs that need to be added together
Freelancers / consultants
1099-NEC, or 1099-K if paid through a platform
Platform-issued 1099-Ks report the gross amount before fees are deducted. And, under current IRS rules, many smaller freelancers won’t receive one at all
Gig workers (rideshare, delivery)
1099-K, plus 1099-NEC for bonuses or referrals
Earnings often span multiple apps, and the 1099-K total includes amounts that never actually reach the driver, like platform fees
Real estate / insurance agents
1099-NEC (commissions)
Commission income is seasonal and uneven, so lenders typically average two years, and switching brokerages can reset that history
Truck owner-operators
1099-NEC
The 1099-NEC reflects gross settlement pay, not take-home. Also, real operating costs like fuel and maintenance can eat up a large share of it
A short note on 1099-K: this form is still used for 1099 loan qualification, but only when a borrower actually receives one. With the $20,000/200-transaction threshold back in effect, many platform-paid freelancers and gig workers fall under that bar and receive no 1099-K at all, so loan officers typically close the gap with bank statements or the platform’s own earnings statements as supporting evidence.
An example of a 1099-K form. AD Mortgage accepts those to qualify borrowers.
1099 Mortgage Loan Requirements
Let’s discuss AD Mortgage’s current requirements for 1099 loan applications.
How Many Years of 1099 Income Do You Need?
AD Mortgage’s 1099 program accepts 1099s for the last 1 year from the same employer. This is shorter than the two years most agency loans want. A one-year file still needs to show continuity with the same payer or line of work. See the 12-month scenario later in this guide for how that gets structured.
Credit Score Requirements
AD Mortgage’s 1099 program accepts a minimum FICO of 620 or no score at all. Requirements differ depending on the pricing tier:
Minimum FICO requirements by pricing tier – Prime, Super Prime, and Apex Prime.
Higher credit scores generally unlock access to the stronger tiers – Super Prime and Apex Prime.
The 620 floor applies to standard amortization only. For interest-only structures, the minimum rises to 680, and first-time homebuyers are not eligible for the I/O option at all.
A score below 660 doesn’t disqualify a borrower. See how to structure that file in the “1099 Borrower With a Credit Score Below 660” scenario below.
Down Payment Requirements and Maximum Loan-to-Value (LTV)
Maximum CLTV by loan purpose: purchase and cash-out refinance.
Loan purpose
MAX CLTV
Purchase
Up to 85%
Cash-out refinance
Up to 80%
Because CLTV tops out at 85% on purchases, borrowers should generally expect a larger down payment than they would put down on a conventional loan. Gift funds are allowed toward the down payment, and eligible borrowers include both individuals and LLCs or corporations without a derogatory credit hit.
Debt-to-Income (DTI) and Cash Reserves
DTI runs up to 55% on owner-occupied files, with a minimum of three months’ reserves.
Maximum DTI by pricing tier, with the conditions required to reach each ceiling.
55% (Owner-occupied property, Purchase / Rate-and-Term refinance, FICO 680, CLTV 80%, loan amount up to 1M)
55% (Owner-occupied property, Purchase / Rate-and-Term refinance, FICO 680, CLTV 80%, loan amount up to 1M)
45%
To prove cash reserves, a borrower can use business funds. For that, underwriters at AD Mortgage use the most recent business bank statement. There are two scenarios:
If the borrower owns 100% of the company, they submit articles of incorporation and an operating agreement, or a CPA letter. The operating agreement and the CPA letter both state the borrower’s exact ownership percentage.
Sample Operating Agreement with the borrower owning 100% of the business
If the borrower owns less than 100%, all other business owners must provide an access letter. In it, the co-owners formally grant the borrower permission to use assets from the business account.
How Mortgage Lenders Evaluate 1099 Income
What Underwriters Check
The loan officer’s main job is to show the lender that the borrower generates income regularly, even without being formally employed. That’s why underwriters always check that the income documents demonstrate continuity and financial stability.
An important criterion for moving a mortgage loan through the pipeline is the same line of work. It refers to whether the borrower’s current 1099 income comes from the same profession, trade, or industry as their prior employment or payer history, judged by job title, duties, and credit report history.
Another thing most lenders pay attention to is the income trend. The borrower’s monthly income should be stable, holding steady or increasing. To check this, the underwriter looks at year-to-date (YTD) income. More on that below – in the ‘Documents and 1099 Income Calculation’ section.
Expense Factor vs Schedule C Net Income
At the start of the origination process, the broker must determine which income documentation to include in the loan file: Schedule C or Form 1099-NEC (and, in some cases, Form 1099-K). That decision affects how the lender calculates qualifying income and, ultimately, which loan program and terms the borrower may qualify for.
Consider a hypothetical scenario: a self-employed borrower receives income reported on Form 1099-NEC. Each year, the borrower files a Schedule C, claims business deductions, and lowers their taxable income as a result. Based on those figures, the broker determines which income program offers the best qualification path.
Our colleague, Account Executive Edward Webb, commented on this scenario:
‘So, it’s contract (self-employed) income. Depending on the nature of expenses the borrower has, broker can offer Full Doc (always an option, especially if not many expenses are written off in Schedule C). But most likely person does write off quite many things, so it makes 1099 or 12/24 month bank statement loans more attractive, as borrower would be able to use more income to qualify (1099 only 10% expense ratio applies)’ – Webb explained.
Use the checklist below to decide which income document to use – Schedule C or 1099-NEC:
When to use Schedule C versus 1099-NEC for the loan file.
Schedule C
1099-NEC
Borrower has minimal business write-offs. Net profit is close to gross income, so there’s no real advantage to routing the file through the 1099 program’s expense factor instead.
Borrower has significant business write-offs. Net profit on Schedule C would come in well below gross, and the 1099 program ignores real expenses in favor of a flat 10% factor.
Required CLTV exceeds 85%. AD Mortgage’s Full Doc Non-QM allows up to 90% CLTV, higher than the 1099 program’s ceiling.
Income comes from one continuous payer in the same line of work.
Borrower doesn’t fit the same-employer/same-line-of-work exception but has 1-2 years of self-employment fully documented through tax returns.
Required CLTV fits within the program’s ceiling – up to 85% (Prime/Super Prime) or 80% (Apex Prime).
Documents and 1099 Income Calculation
Document Checklist
Income verification for a 1099 file follows a standard sequence. If a borrower applies for a 1099 loan in 2026, the underwriter will review their 2025 1099s. Next comes year-to-date income (confirmation that the borrower is still generating income):
For W-2 workers, this is typically a pay stub.
For 1099 borrowers, it’s usually a written verification of employment (WVOE), profit and loss statements, or other equivalent third-party documentation.
Transaction Detail by Account Report, an equivalent third-party document for year-to-date income.
Bank statements are also required – they document the borrower’s available assets. For the AD Mortgage’s 1099 program specifically, there needs to be enough to cover the down payment plus a minimum of three months of PITIA (the borrower’s full expected monthly payment, covering principal, interest, taxes, insurance, and association dues).
Important: sometimes mortgage brokers upload every possible income document, hoping to push DTI as low as it can go. In reality, once DTI is under 45%, it’s already considered decent, and reducing it further from 30% to 25% generally won’t make a difference to the underwriter – the pricing tier doesn’t change either way.
Tip: calculate DTI before uploading loan documents into the system. If it’s already under 45%, upload only the core income documents – for example, 1099 forms. There’s no point adding bank statements on top just because the borrower has some small side income. That approach won’t ‘unlock’ better interest rates for your borrower.**
Download our checklist to keep all initial disclosure requirements in one place.
To calculate the qualifying income for the 1099 mortgage program, use the following formula:
(Total 1099 income – 10% (expense factor)) / 12 or 24 months
Calculation Example
Sample 1099-NEC, with a yearly non-employee compensation of $100,000.
Suppose a borrower made $100,000 in 2025. To calculate his qualifying income:
Subtract 10% from this total: $100,000 – 10% = $90,000
Divide the resulting number by 12 (since this form only covers 12 months of 2025): $90,000 / 12 = $7,500
Thus, $7,500 is the borrower’s monthly income to use when calculating DTI.
‘Sometimes a borrower has mixed income. For example, if a borrower has 1099 income from Amazon and runs a separate self-employed business, we could commingle both bank statement and 1099 income. This allows the borrower to unlock more income and bring their DTI below the 50-55% required for the Non-QM loan program. Ultimately, this helps the loan qualify so we can find creative ways to say ‘yes’ when others say ‘no’,’ shares Brennen Moloney, SVP Business Development at AD Mortgage.
1099 Borrower Scenarios: How to Structure the File
We asked AD Mortgage’s Account Executives to walk through a few scenarios brokers often run into with the 1099 program.
Borrower Has Only 12 Months of 1099 Income
AD Mortgage’s 1099 program only requires 12 months of 1099 income, but that assumes at least two years of overall work history. Also, a calendar-year 1099 won’t always show a full year of earnings. ‘We need to watch out for uneven years of employment. If someone with 15 months of employment applied right now, then we’d qualify off of the 2025 1099 and they’d only have 5 months of earnings on the 2025 1099,’ explains Anna Veselenak, Account Executive on the Wholesale Team.
‘It’s also worth looking at our Bank Statement loan program. While 12 months may work, providing 24 months of bank statements can potentially offer better pricing depending on the scenario. Having a longer history gives us a bigger picture of the borrower’s income and deposits,’ adds Veselenak.
Borrower Receives 1099s From Multiple Payers
Freelancers and independent contractors routinely work with more than one client, so multiple 1099s aren’t an automatic dealbreaker. The first checks are whether the 1099s come from one employer or several companies, and whether each is issued in the borrower’s personal name.
‘A 1099 can be issued either in the borrower’s personal name or in the name of the borrower’s business. We can only accept the personal 1099 as per our guidelines,‘ Veselenak explained.
If there’s a consistent one-year history with the employer, the file can typically go through the standard 1099 income qualification option. The same holds even when there’s more than one payer involved: income from several companies can still be considered on the same 1099 basis, as long as the borrower has at least one year of history with each company, along with the program’s other standard requirements. A common example is a borrower earning 1099 income through both Uber and Lyft.
Heavy Write-Offs Make Tax Returns Show Low Income
This is a common challenge for self-employed borrowers. Write-offs can bring down the taxable income shown on tax returns, even when the borrower has a healthy amount of money coming in.
‘I’d look at our 1099 and Bank Statement loan programs to see which option makes the most sense,’ Veselenak shares. ‘With bank statements, we can review the deposits, where they’re coming from, and how consistent the income is without relying on tax returns alone.’
Borrower Switched From W-2 to 1099 Less Than a Year Ago
How to structure the file depends on what changed at the switch.
‘If the borrower stayed with the same employer, in the same position, and only the pay structure changed (for instance, from W-2 to 1099, as discussed earlier), the file is fine as is: under the guidelines, this borrower can still go through the 1099 program,’ explains Edward Webb, Account Executive at AD Mortgage.
If the employer stayed the same but the position changed, or the employer changed while the line of work stayed the same, an exception will most likely be needed.*
But if the line of work changed too, it’s worth looking at other loan options instead, such as a 12- or 24-month bank statement loan program.
1099 Borrower With a Credit Score Below 660
A score between 620 and 659 clears the 620 minimum FICO on both Prime and Super Prime, just not the 680 minimum on Apex Prime.
For a sub-660 profile, Prime is usually the more forgiving starting point:
Its mortgage history requirement (0x60x12) is looser than Super Prime’s (0x30x12).
It accepts limited tradelines instead of a standard tradeline history.
Its residual income floor is lower ($1,500/month vs. $2,000).
Keep in mind that the program’s 55% DTI ceiling requires a 680 FICO among its conditions, so a borrower below 660 won’t qualify for that top allowance on either tier. So, plan the file around a lower DTI from the start rather than assuming the 55% cap applies.
1099 Borrower Buying an Investment Property
For real estate investors, AD Mortgage also offers a DSCR program – so before committing to 1099, it’s worth weighing the two against each other.
With a DSCR loan, the property’s rental income qualifies the borrower, rather than their personal 1099 income. If the property is expected to generate strong rental income, DSCR is worth considering from the start. If not, the 1099 program may be the better fit.
Have a challenging scenario that doesn’t fit the box? Send it to us and receive help from our Account Executive.
Credit score – one of several gatekeeping factors for tier eligibility (Prime matrix, Super Prime matrix, or Apex Prime matrix). Each tier sets its own minimum FICO along with its own CLTV, DTI, reserve, and property-type requirements.
LTV/CLTV – AD Mortgage’s 1099 program caps CLTV by tier and occupancy type. Lower leverage is generally viewed as lower risk by underwriting.
Debt-to-income ratio – the program’s maximum DTI varies by tier and is subject to specific conditions (credit score, CLTV, loan amount, and transaction type). Staying well under the applicable ceiling can be a compensating factor.
Reserves – minimum reserve requirements vary by tier. Reserves beyond the minimum may help offset other risk factors in the file.
Property use – primary residence, second home, and investment properties are each treated differently under the program’s CLTV and eligibility guidelines.
Income history – the program allows as little as 12 months of 1099 income under certain conditions. A longer, more consistent history generally strengthens the file.
Loan amount – larger loan amounts may be subject to additional reserve or documentation requirements, depending on the tier.
Property type – certain property types (non-warrantable condos, condotels, short-term rentals) have specific eligibility rules that vary by tier.
Prepayment penalty – commonly used on investment-property (business-purpose) Non-QM loans. Use on owner-occupied loans is limited by federal regulation.
None of these factors work in isolation; underwriting looks at the full file together.
Need coordination on your next file? Submit a scenario and get a read in 30 minutes.***
Dealing with a self-employed borrower doesn’t have to be hard. Price the right income type, pick the right loan type, and document it the right way. The tax deductions that would sink a Full Doc application turn into qualifying income instead.
Become a partner to receive access to AD Mortgage’s 1099 program, or submit your next scenario and get a read within 30 minutes.
FAQ: 1099 Mortgage Loans
Is a 1099 Loan a Non-QM Loan?
Yes. A 1099 loan doesn’t meet agency documentation standards, which places it in the Non-QM (non-qualified mortgage) category. That doesn’t mean it skips underwriting – it’s still fully underwritten, just against a different set of documentation rules than Fannie Mae or Freddie Mac requires.
Do I Need Tax Returns for a 1099 Mortgage?
No. For AD Mortgage’s 1099 program, you don’t need your borrower’s tax returns (Form 1040). We apply a flat 10% expense factor to their 1099 totals to get to qualifying income. If their profile fits a different program better, like Full Doc or bank statements, tax returns might come back into play, but for a 1099 file, they’re simply not part of the equation.
Can I Combine 1099 and W-2 Income on One Application?
Yes. If your borrower has a W-2 job plus 1099 income on the side, you can combine them on one mortgage application. Just keep in mind that pricing follows the more conservative income type in the mix, so it’s worth running the numbers together before you commit to a structure.
Can I Refinance or Take Cash Out With a 1099 Loan?
Yes. Cash-out refinances are available on the 1099 program, up to 80% CLTV. Your borrower’s income still gets documented the same way, through their 1099 totals and the 10% expense factor, so refinancing doesn’t add any extra income hoops to jump through.
How Do I Find a 1099 Mortgage Lender?
Not every wholesale lender runs a dedicated 1099 program with its own pricing tiers, so it’s worth asking directly. AD Mortgage’s 1099 program is split into three tiers, so a thinner credit profile still has a path through Prime, while a stronger one gets better leverage through Super Prime or Apex Prime. Beyond 1099, AD Mortgage also offers DSCR, Asset Utilization, FHA, VA loan programs, and more, so a borrower who doesn’t fit one path often fits another.
Is It Harder to Get a Mortgage With a 1099?
Not necessarily. A self-employed borrower often struggles to make Full Doc work because their write-offs push qualifying income too low. At AD Mortgage, the 1099 program solves that with a flat 10% expense factor instead of reviewing actual deductions, and it accepts a FICO as low as 620, or even no score at all. The tradeoff is that it’s a Non-QM product, so your borrower should generally expect somewhat different terms than a conventional loan.
* Not financial advice.
** Not financial advice. Exception approval is not guaranteed.
***Monday-Friday: 8 AM to 7 PM (EST). For requests sent outside these hours, you will be contacted the next morning.
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