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Unlocking Homeownership for the Self-Employed: A Guide to the 1099 Income Loan Program

Sal Ciubancan  7-MINUTE READ  April 16, 2024

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Unlocking Homeownership for the Self-Employed: A Guide to the 1099 Income Loan Program

For many self-employed individuals, the dream of homeownership can feel out of reach. Traditional mortgages often require tax returns for income verification, which can be a challenge for those with fluctuating income. But fear not! The 1099 Income Loan Program offers a solution specifically designed for self-employed borrowers like you.

⚙️ HOW DOES A 1099 INCOME PROGRAM WORK?

Unlike traditional mortgages, the 1099 Income Loan Program uses alternative methods to verify your income. Here's a breakdown of the process:

Eligibility Requirements:

  • Minimum Self-Employment History: You need to be working with the same employer for at least two years. This establishes a track record of consistent income.
  • Employer Covers Business Expenses: Your employer must cover all your business expenses. This ensures a clearer picture of your actual income.

Income Verification: There are two options for income verification, and lenders may offer one or both:

  1. 2-Year 1099 Average:
    • Provide your 1099 forms for the last two years with the same employer.
    • The total income from these forms is then divided by 24 months to get your average monthly income.
  2. Most Recent Year's 1099:
    • Provide your most recent 1099 form.
    • The income on this form is divided by 12 months to get your monthly income.

Additional Documentation:

In addition to 1099 forms, lenders may require:

  • Employer Verification Letter: A letter from your employer confirming your date of hire and that they cover all business expenses.
  • Bank Statements: Statements for the bank account where you deposit your self-employment income (YTD Bank Statements are preferred).

Loan Approval:

Once your income is verified and additional documents are reviewed, the lender will determine your eligibility for the loan program. If approved, the income figure calculated using either the 2-year average or most recent year's 1099 will be used to qualify you for your new home loan.

WHO IS THE IDEAL CANDIDATE FOR THE 1099 INCOME PROGRAM?

The 1099 Income Loan Program is a perfect fit for several types of self-employed individuals, regardless of how you file your Federal income taxes:

  • Workers receiving consistent 1099 wages: This includes employees classified as independent contractors or those working for a company that issues 1099 forms instead of W-2s.
  • Independent contractors: If you work for multiple clients but receive consistent income, you may be eligible.
  • Sole proprietors: As a sole proprietor, you own an unincorporated business. The 1099 Income Loan Program can help you achieve homeownership even if your business is not formally established.
  • Freelancers with consistent clients: If you freelance and have a consistent income stream from the same client(s), this program can be a great option.

Benefits of the 1099 Income Loan Program:

  • Alternative Income Verification: No need for tax returns! This program allows for income verification through alternative means.
  • Greater Flexibility: Loan terms and down payment requirements may be more flexible compared to traditional mortgages.
  • Faster Processing: Utilizing alternative income verification methods can potentially lead to faster loan approvals.

Remember:

  • Maintain good financial records for a smoother documentation process.
  • Build a strong credit history to improve your chances of approval.

With the 1099 Income Loan Program, self-employed individuals can finally turn their dream of homeownership into a reality. By understanding the eligibility requirements, income verification process, and benefits of the program, you can confidently embark on your journey towards homeownership.


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