W-2 vs 1099 Mortgage: What Changes When You Buy

By Travis Penny, Senior Mortgage Broker, NMLS 1649161.

W-2 or 1099 is a big deal when you go to buy a house, and most people find out too late. The same $120,000 can look very different to a lender depending on which form it comes on. Here is how each one is read, and what to do if you've already made the switch. If you're already on 1099 income and want the programs, go straight to my 1099 mortgage loans page.

How a lender reads W-2 income

With a W-2 job, the lender uses your gross pay before taxes. You need a recent pay stub, your W-2s and, usually, a two year work history, which can include school or a job in the same field. Raises count right away. That is why W-2 borrowers have the easiest path.

How a lender reads 1099 income on a standard loan

On a standard conventional or FHA loan, 1099 earners are treated as self employed. The lender uses the net income on your tax returns after write offs, averaged over two years. If you wrote off mileage, a home office and equipment to cut your taxes, those same write offs cut your qualifying income. A contractor who grossed $120,000 and netted $70,000 is qualified on $70,000.

What 1099 programs do differently

Specialty 1099 programs skip the tax return math. They use the income on your 1099 forms, minus a set expense factor, which usually lands much closer to what you actually earn. Two options I now have access to are worth knowing:

One year of 1099s. A purchase program that can use a single year of 1099 income for buyers with a 760 or higher credit score.
Day one W-2 to 1099. For people who just moved from a W-2 job to 1099 work in the same line of work, so you don't have to wait a year or two to buy.

Side by side

	W-2	1099, standard loan	1099 program
Income used	Gross pay	Net after write offs	1099 income less an expense factor
History	About two years in the field	Usually two years	One year at 760+, or day one after a W-2 switch
Main documents	Pay stubs, W-2s	Tax returns	1099s, contract, bank statements

If you're about to switch

If you have a choice, close on the house while you're still on W-2 pay. If the switch is already done, don't assume you have to wait two years. Call me before you sign anything, because a day one or one year option may already fit. Travel nurses and realtors have their own wrinkles; I cover nurses on my home loans for nurses page.

FAQ

Is it easier to get a mortgage with a W-2 or a 1099?

Usually a W-2, because gross pay counts and less history is needed. 1099 programs close that gap by using your 1099 forms instead of net taxable income.

How many years of 1099s do I need for a mortgage?

Standard loans usually want two years. A purchase program I have access to can use one year of 1099s with a 760 or higher credit score.

Can I get a mortgage right after switching from W-2 to 1099?

Sometimes. A day one option can work when you moved from a W-2 job to 1099 work in the same field. I review your contract and history.

Do write offs hurt my mortgage approval?

On a standard loan, yes. Lenders use the net income on your Schedule C after expenses. A 1099 program can use gross 1099 income less a set expense factor instead.

Should I switch to 1099 before or after I buy a house?

If you can, close first. If the switch has already happened, a day one or one year 1099 program may still fit.

Send me your 1099s or your new contract, and I'll tell you which path gets you the most buying power. Start your application, or reach me through my contact page.

Travis Penny, Senior Mortgage Broker, NMLS 1649161 | Vision Mortgage, NMLS 1286953 | Residential loans in Maine and Florida.

W-2 vs 1099 for a Mortgage: How Each Affects Buying a Home