Being a 1099 contractor doesn’t put you in a separate mortgage category. It does mean lenders read your income differently than a W-2 paycheck, and depending on how you file, that can work for you or against you. Here’s how the math actually works.
Key Takeaways
- A “1099 mortgage loan” isn’t a Fannie Mae or Freddie Mac program. Conventional lenders underwrite 1099 contractors as self-employed and qualify them on Schedule C net profit averaged over two years, not gross 1099 receipts, so the write-offs that lower your taxes also lower your qualifying income.
- Lenders must add back depreciation, depletion, business use of home, amortization and casualty losses. If you took the standard mileage deduction, they may also add back its depreciation portion (30 cents per mile for 2024, 33 cents for 2025), which is worth about $788 a month for a contractor who drove 30,000 business miles in each year.
- You don’t always need two years of 1099s. Fannie Mae and Freddie Mac both accept shorter self-employment histories when your latest returns show at least 12 months of self-employment income and you previously worked in the same or a similar field, though Freddie Mac qualifies you on the lower of your contractor income or your prior-job income.
Why There’s No Separate “1099 Loan” Underwriting
Fannie Mae’s Selling Guide considers anyone who owns 25% or more of a business self-employed. If you file a Schedule C as a sole proprietor, you own 100% of your business. As far as your lender is concerned, you’re self-employed, no matter what your clients call the work.
Which Income Number Lenders Use
Lenders start with your Schedule C net profit and usually average your two most recent years. If you’re applying now, that typically means your 2024 and 2025 returns. If you’re on an extension for 2025, tell your loan officer early, because it changes which documents you’ll need.
Here’s the catch: every write-off that trims your tax bill also trims the income a lender starts with. That’s not where the math ends, though. Some expenses get added back, and one gets subtracted.
Required Add-Backs
Fannie Mae requires lenders to add back certain recurring Schedule C expenses: depreciation, depletion, business use of home, amortization and casualty losses. These lowered your taxable income without taking any cash out of your business, so they count toward your income again. This isn’t left to the underwriter’s discretion. It’s part of the calculation.
Required Subtraction
The portion of meals and entertainment you couldn’t deduct gets subtracted. You still spent that money, even though it never showed up as an expense on your return.
If Your Income Went Down
Averaging only works if your income is holding steady or growing. If your latest year came in lower, expect to be qualified on that lower year instead. A big drop, or one that keeps going, can make the income unusable until it levels off. Better to learn that now than halfway through underwriting.
If You Took the Standard Mileage Deduction, Part of It May Count Back
First, a quick check: this only applies if you used the standard mileage rate. If you deducted actual vehicle expenses, your depreciation is already reported separately and gets picked up in the add-backs above.
Part of the standard mileage rate is depreciation. The IRS sets that piece at 30 cents per mile for 2024 and 33 cents for 2025. Fannie Mae’s cash flow analysis form lets lenders multiply your business miles (Schedule C, line 44a) by each year’s rate and add the result back to your income.
The agencies allow this add-back but don’t require it, so it’s worth asking whether your lender applies it. Tomo Mortgage doesn’t layer extra restrictions on top of agency guidelines, so the add-back is available on any Tomo Mortgage file where you took the standard mileage deduction. Just make sure your line 44a miles are in your file.
Here’s what that looks like. Say you drove 30,000 business miles in both 2024 and 2025 and took the standard mileage deduction both years:
- 2024 add-back: 30,000 × $0.30 = $9,000
- 2025 add-back: 30,000 × $0.33 = $9,900
- Averaged over 24 months: $18,900 ÷ 24 = $787.50 a month
That’s $787.50 a month in qualifying income you won’t find on the bottom line of either return.
The rate goes up to 35 cents for 2026, which will come into play once 2026 returns are in use.
One Year of Returns, or Less Than Two Years of Contracting
If Your Business Is Well Established
Some self-employed borrowers only need one year of returns. Fannie Mae’s Desktop Underwriter can accept one year of personal and business returns instead of two. That generally applies when the business has been around at least five years and you’ve owned 25% or more of it the whole time. When Desktop Underwriter allows one year, so does Tomo Mortgage.
If You’re Newer to Contracting
Two years is the usual standard, but both agencies make room for shorter histories. Either way, your most recent tax returns need to show at least 12 months of self-employment income.
Fannie Mae: Your most recent signed returns need to show a full 12 months of income from your current business. Your file also needs to show you previously earned at the same level or higher, either in a field offering the same products or services, or in a job with similar responsibilities.
Freddie Mac: You need a combined two-year history across your current self-employment and a prior job in the same or a similar line of work. Freddie Mac qualifies you on whichever is lower: your new business income or what you earned in the prior role. Your lender also has to write up why your income is stable and weigh your overall risk.
So with Freddie Mac, if you earn more as a contractor than you did as an employee, you’ll be qualified on the lower employee number.
Tomo Mortgage accepts files under either exception when the documentation supports them, and we don’t add requirements of our own. If you left a W-2 job last year, don’t assume the answer is no.
If You Were Declined Before
If a lender turned you down, they have to tell you why. The reason is either in the denial notice itself, or you’re entitled to it if you ask within 60 days. Get that answer before you do anything else, because some reasons are fixable.
If it came down to debt-to-income (DTI), that number can move. Conventional loans approved through automated underwriting generally top out at 50%, and a few things can bring your ratio down:
- Add-backs, including mileage depreciation, raise your income. Your last lender may not have counted them.
- Paying off an installment loan cuts your monthly debt.
- A lower purchase price means a lower housing payment in the calculation.
- Adding a co-borrower changes both sides of the ratio.
If you’re shopping around, try to keep your credit checks between 14-45 days. Depending on the scoring model a lender uses, multiple mortgage inquiries in that window count as one.
If the Math Still Doesn’t Work
Some contractors write off so much that their returns understate what they really earn, and the add-backs can’t close the gap. For them, non-QM programs qualify borrowers on gross 1099 receipts or bank deposits instead. Expect larger down payments and higher rates than on conventional loans. A loan officer or broker who works in that space can walk you through how those loans are structured.
What to Send for an Income Calculation
Want us to run your numbers? Here’s what to send:
- 2024 and 2025 personal tax returns, with all schedules
- Business returns for both years, if your business files separately
- A year-to-date profit and loss statement, if your loan officer asks for one
- Your 1099s
- Your business miles from Schedule C, line 44a, if you took the standard mileage deduction
- Your prior employment history in the same line of work, if you’ve been contracting for less than two years
You can apply and upload everything online. If the numbers come up short, your loan officer will tell you which part fell short: the income average, the trend or DTI.
Tomo Mortgage, LLC. NMLS #2059741. Equal Housing Lender.
Frequently Asked Questions
Can you use 1099s as proof of income for a mortgage?
Yes, but on conventional loans your 1099s support the application rather than set the qualifying figure. Lenders calculate income from your Schedule C net profit, add back certain non-cash deductions, and usually average two years.
How do lenders calculate 1099 income for a mortgage?
They start with Schedule C net profit. They add back depreciation, depletion, amortization, business use of home and casualty losses, and subtract excluded meals and entertainment expenses. They usually average two years, but if income declined, they generally use the lower recent year.
Can I get a mortgage with less than two years of 1099 income?
Sometimes. Both Fannie Mae and Freddie Mac require at least 12 months of self-employment income on your most recent returns, plus a documented history in the same or similar line of work. Freddie Mac qualifies you on the lower of your current self-employment income or your prior job’s income.
Can I qualify with only one year of tax returns?
For some files, yes. Fannie Mae’s automated underwriting can accept one year of returns, generally when the business has existed for at least five years and you’ve owned at least 25% of it throughout.
Do 1099 mortgage loans have higher rates?
On conventional loans, being self-employed isn’t itself a pricing factor. Your rate depends on the same things as any other borrower’s, such as credit score and down payment. Non-QM programs that qualify on gross receipts or bank deposits generally carry higher rates than conventional loans.
Does my business mileage deduction lower my qualifying income?
If you took the standard mileage deduction, the depreciation portion (30 cents per mile for 2024, 33 cents for 2025) may be added back, so some of that deduction counts as qualifying income. At Tomo Mortgage, the add-back is available on any file where you took the standard mileage deduction.