For a conventional mortgage, lenders calculate 1099 income by averaging your net (after-expense) income over two years from your tax returns, and won’t count it unless it’s stable or rising. A 1099 income loan (a non-QM program) instead uses your gross 1099 income with a flat expense factor (often 10–20%), so heavy write-offs don’t sink your approval. Contractors, gig workers, and commission earners usually qualify for far more with a 1099 loan.
The conventional method: two-year net average
Traditional lenders treat 1099 earners as self-employed. They take the net income from your tax returns (after every deduction), average the last two years, and only use it if it’s steady or growing. If year two is lower than year one, they often use the lower figure. The catch: the write-offs that cut your tax bill also cut the income you can qualify with.
Example: $180,000 gross 1099 income with $70,000 of write-offs = $110,000 net. Average over two years and that’s your qualifying income — even though $180,000 hit your bank.
The 1099 loan method: gross income minus a flat factor
A 1099 income loan skips the tax returns. The lender takes your gross 1099 income (from your 1099s or a year-to-date record) and applies a simple expense factor — often 10–20% depending on your profession — as your qualifying income.
Same borrower: $180,000 gross × (1 − 15%) = $153,000 qualifying income — roughly $43,000 more than the conventional net method, which can mean a much larger loan.
Which should you use?
If your write-offs are modest, conventional may give the best rate. If you deduct heavily (most contractors do), a 1099 loan — or a bank statement loan — usually qualifies you for more. A broker can run all three and pick the winner.
Bottom line: Don’t let write-offs cost you the house. If you’re 1099, ask a broker to compare the conventional two-year average against a 1099 loan’s gross-income method — the difference is often tens of thousands in buying power.
Frequently asked questions
How do lenders calculate 1099 income for a mortgage?
Conventionally, they average your net (after-expense) income over the last two years from your tax returns and require it to be stable or rising. A 1099 loan instead uses your gross 1099 income minus a flat expense factor.
How many years of 1099 income do I need?
Conventional loans generally want a two-year history. Some 1099 loan programs accept one year, or even less with strong compensating factors — a broker can find the lender with the shortest requirement for your file.
Can I qualify with only one year of 1099 income?
Often yes, through a non-QM 1099 or bank-statement program, especially if you were in the same line of work as a W-2 employee before going independent. Guidelines vary by lender.
Is a 1099 loan better than a conventional loan for contractors?
Frequently, because it uses gross income with a fixed expense factor instead of your written-down net, qualifying you for more. Conventional may still win on rate if your deductions are small — compare both.
Save Financial, Inc. — NMLS #377740, DRE #01875766. Equal Housing Opportunity. Figures are illustrative for 2026 and not an offer of credit or a guarantee of rates or approval.