Here’s a step-by-step formula to help you, as a 1099 contractor, qualify for a mortgage:
- Calculate Your Income: Determine your average monthly income by adding up your 1099 earnings over the past two years and dividing by 24 (or 12 if you have a consistent income).
2. Make sure to include all sources of income.
3. Gather Documentation: Collect necessary documentation such as tax returns, profit and loss statements, and bank statements to prove your income stability and reliability.
4. Improve Credit Score: Work on improving your credit score by paying off debts, making payments on time, and reducing credit card balances. A higher credit score can increase your chances of qualifying for a mortgage and getting better terms.
5. Save for a Down Payment: Start saving for a down payment. While some lenders offer loans with low down payment options, having a larger down payment can strengthen your application and may result in better terms.
6. Reduce Debt-to-Income Ratio: Pay off existing debts or reduce them as much as possible to lower your debt-to-income ratio. Lenders typically prefer a ratio below 43%.
7. Build a Stable Work History: Demonstrate a stable work history by staying with the same clients or employers for an extended period. Consistency can improve your mortgage application’s credibility.
8. Consider a Co-Signer: If you have difficulty qualifying on your own, consider adding a co-signer with a stable income and good credit score to strengthen your application.
9. Research Lenders: Research and compare lenders who specialize in working with self-employed individuals or freelancers. They may have more flexible requirements or special programs tailored to your situation.
10. Pre-Approval: Get pre-approved for a mortgage to understand how much you can afford and to show sellers that you’re a serious buyer.
11. Consult with a Mortgage Broker: Consider working with a mortgage broker who can help you navigate the process and find lenders that best suit your needs as a 1099 contractor.
Following these steps can improve your chances of qualifying for a mortgage as a 1099 contractor. Remember to be diligent, patient, and proactive throughout the process. For additional, sign up for Revve and get regular updates on your path to mortgage success.
This is also a great guide for first-time homebuyers that goes into detail other important considerations on PNC.com.
https://www.pnc.com/en/personal-banking/borrowing/home-lending/learn/first-time-homebuyer-guide.html