Mortgage Prequalification for 1099 Employees

Freelancers will have to provide more documentation when applying for a mortgage loan.

Freelancers will have to provide more documentation when applying for a mortgage loan.

Mortgage lenders want to make sure that you can afford your monthly payments before approving you for a mortgage loan. They'll look at several factors when analyzing your application, including your employment status. If you are a freelance worker who at income tax time receives Forms 1099 from several clients rather than a single Form W-2 from a full-time employer, you'll have a more difficult time persuading lenders to give you mortgage money. But don't despair: Qualifying for a mortgage loan as a 1099 worker is not an impossible goal.

What Mortgage Lenders Want

When considering your application for a mortgage loan, lenders will look at several factors to determine how likely you are to pay your loan on time each month. They'll consider your three-digit credit score, your gross monthly income and your debts. They'll look for any past housing foreclosures or bankruptcies. And they'll also look at your employment situation. In general, lenders prefer to work with borrowers who have worked at their current company for at least two years. They also like to loan money to borrowers who have a regular, steady paycheck. This doesn't bode well for 1099 workers, whose incomes can vary widely from month to month.

Lenders' Worries

Lenders worry that freelance workers are too prone to ups and downs when it comes to their monthly income. A freelance photographer might make a significant amount of money during the spring and summer months when more people get married, and struggle during the winter when weddings are less common. Freelance writers might thrive one month but then find few paying clients the next. Lenders consider passing out mortgage money to freelancers more risky because of this financial uncertainty.

What You Can Do

This doesn't mean that you won't qualify for a mortgage loan if you're a 1099 worker. You'll just have to show lenders that your annual income has been steady for several years. To prove this, lenders might require you to provide copies of your tax returns for the last three years. Lenders can then determine whether your yearly freelance income has been steady or rising during this time. If your income has varied widely during that time, you might struggle to persuade a lender to loan you mortgage dollars. Your lender might also require you to send copies of the individual 1099s you've received during the past year from your clients. Your lender will look at these to determine that you have a significant amount of money coming each year from a variety of clients.

Make Yourself an Attractive Borrower

You can help your cause, too, by making sure that your other financials are attractive to mortgage lenders. Make sure you don't have a lot of revolving debt, especially credit-card debt. Make sure, too, that you pay your bills on time each month. This will give you a stronger three-digit credit score. The higher this number -- shoot for 740 or higher on the popular FICO credit-scoring system -- the more likely you'll be to qualify for a mortgage loan.

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About the Author

Don Rafner has been writing professionally since 1992, with work published in "The Washington Post," "Chicago Tribune," "Phoenix Magazine" and several trade magazines. He is also the managing editor of "Midwest Real Estate News." He specializes in writing about mortgage lending, personal finance, business and real-estate topics. He holds a Bachelor of Arts in journalism from the University of Illinois.

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