1099 & P&L Mortgages: Self-Employed Home Loans

If you earn your living on 1099s, your tax return is working against you at the mortgage desk. Every legitimate deduction you take lowers the net income a conventional lender is allowed to count. A contractor who grossed $160,000 and netted $70,000 after expenses qualifies, in the lender's eyes, as a $70,000 earner.

1099 and P&L mortgages fix that mismatch. A 1099 loan qualifies you on the gross income shown on your 1099 forms. A P&L loan qualifies you on a Profit and Loss statement prepared by your CPA. Neither requires tax returns. Both are non-QM (non-qualified mortgage) products, which means they sit outside Fannie Mae and Freddie Mac rules and are priced a bit higher in exchange for the flexibility.

How a 1099 loan calculates your income

The lender replaces your tax return with the 1099s you received. The standard approach:

1. You provide one or two years of 1099 forms from one or more payers
2. The lender totals the gross income reported on them
3. An expense factor, usually 10% but sometimes up to 25% depending on your line of work, is subtracted to account for business costs
4. The result is divided by 12 or 24 to get your monthly qualifying income

Example: your 1099s total $150,000 for the year. At a 10% expense factor, qualifying income is $135,000 ÷ 12 = $11,250/month. The same borrower on a conventional loan might qualify on far less once Schedule C deductions come off the top.

Most lenders also want proof the income is still coming in. Expect to show two or three months of recent bank statements or a year-to-date payment history from your payers.

How a P&L loan calculates your income

A P&L loan is built for business owners whose income does not arrive on 1099s, or who have too many payers to document cleanly. Instead of 1099s, you submit a 12 or 24 month Profit and Loss statement prepared by a licensed CPA, enrolled agent, or tax preparer. The lender uses the net income on the P&L as your qualifying income.

Some programs are "P&L only" and take the statement at face value. Others ask for two or three months of business bank statements to confirm the deposits roughly match what the P&L reports. If the deposits fall well short of the stated revenue, the lender will use the lower figure.

Because the number comes from your accountant rather than a government form, lenders scrutinize who prepared it. A P&L you drafted yourself will not pass.

Typical loan requirements

Requirements vary by lender, but most fall into these ranges:

• Income documentation: 1 or 2 years of 1099s, or a 12 or 24 month CPA-prepared P&L
• Self-employment history: 2 years in the same line of work; some lenders accept 1 year with prior experience in the field
• Credit score: 620 minimum with most lenders; 660 to 680+ for better pricing and lower down payments
• Down payment: 10% minimum for strong borrowers; 15% to 20% is more common
• Debt-to-income ratio: typically up to 50%, calculated on the derived income
• Reserves: 3 to 12 months of mortgage payments in liquid assets, depending on loan size
• Loan amounts: up to $3M or more with some lenders
• Property types: primary residence, second home, investment property
• Loan purpose: purchase, rate-term refinance, or cash-out refinance
• Interest rate: typically 0.5% to 1.5% above comparable conventional rates

1099, P&L, or bank statement: which one fits

These three products solve the same problem for different paper trails. The right one depends on how your income shows up.

• 1099 loan: you work for a small number of companies that issue you 1099-NEC forms. Think contract nurses, real estate agents, consultants, owner-operator drivers, and tradespeople who sub for a few general contractors.
• P&L loan: you run a business with many customers and no single payer issues a meaningful 1099. Retail, restaurants, e-commerce, and service businesses that invoice dozens of clients fit here.
• Bank statement loan: your deposits tell a cleaner story than your paperwork. Gig workers paid through multiple platforms and anyone whose 1099s understate what actually hits the account often qualify for more this way.

Many non-QM lenders offer all three and will run the numbers each way. Ask for the calculation that produces the highest qualifying income, then confirm it holds up against your recent deposits.

Who 1099 and P&L loans work well for

• Independent contractors with steady 1099 income and heavy Schedule C deductions
• Commissioned professionals such as real estate agents and insurance producers paid on 1099
• Travel and contract healthcare workers who moved from W-2 staff roles to agency contracts
• Small business owners whose CPA can produce a clean, defensible P&L
• Households with mixed income, where one borrower is 1099 and the other is W-2

When a 1099 or P&L loan probably isn't the right fit

• Your tax returns already show enough net income to qualify conventionally. The conventional loan will be cheaper.
• You have been self-employed for less than a year, or you recently changed industries. Most lenders will not count the income yet.
• Your 1099 income swings sharply year to year. Lenders average it, and a steep decline can disqualify the most recent year entirely.
• You need the lowest possible rate and can wait. Two years of stronger taxable income may open the door to conventional financing.

Key risks to understand

The expense factor is not negotiable with every lender. A 10% factor on $150,000 leaves $135,000. A 25% factor leaves $112,500. That difference can move your price range by tens of thousands of dollars. Ask what factor applies to your occupation before you shop for homes.

Rates are higher than conventional. A 1% premium on a $400,000 loan is roughly $250 more per month. Some borrowers plan to refinance into a conventional loan once two years of returns support it.

Declining income gets penalized. If this year's 1099s are lower than last year's, most lenders use the lower figure or require a written explanation. Growing income is averaged; shrinking income is not.

Guidelines vary widely. Expense factors, minimum scores, and how many years of 1099s are required are not standardized. Two lenders can look at the same paperwork and arrive at different qualifying incomes. Shop at least two or three.

How to prepare before applying

• Collect two years of 1099s, even if a lender only asks for one; the extra year widens your options
• If you plan to use a P&L, engage your CPA early and ask for a 12 and a 24 month version
• Pull your last three months of bank statements and make sure the deposits line up with your 1099s or P&L
• Check your credit and clear any errors three to six months before you apply
• Build reserves; three to six months of the expected payment is the common floor
• Have a lender run the income calculation before you make an offer, so you know your number

Common questions