Recent switch to 1099 income - how to qualify for a mortgage?

[Jon Sutton]

I bought a home in 2020 in a popular market. As a result of appreciation (both natural and forced), I will be able to pull out 30-50k when I refinance.

I’m a consultant. My prior contract work had me embedded as a w2 employee with particular companies. In 2020, I started to do my consult in my own, which earned me ~20k in addition to my w2 income. I’m now shifting entirely into working for myself, so all my income going forward is 1099.

From my understanding this new 1099 income doesn’t mean squat for 2 years of documented history to underwriters. I’m stuck for refinancing but also potentially for a mortgage on an investment property with my equity from my residence as a healthy down payment. Are there types of loans or magic words I can tell some credit unions to qualify me? I don’t think I’m a terribly uncredible customer, but maybe the actuarial gods say I am.

[Dave Spooner]

@Jon Sutton The not very useful answer is that it depends.

Firstly, it depends largely on the lender. A lot of the big banks aren't going to budge on this kind of thing, but you might find more flexibility with a local financial institution or credit union. I'd start by shopping around and being really transparent with your situation. You could also go the hard money route. If you look that good on paper, you might be able to get terms that aren't too far off a traditional mortgage.

Secondly, if you do find a lender willing to play ball, it will likely depend on the income shift (if there is one) and how well documented your income is. They do traditionally look for 2 years of self-employed income but, as with almost all things real estate, that's not a hard and fast rule.