The direct answer
Lenders total your 1099 earnings over the qualifying period — typically one or two years — then apply an expense factor for business costs and divide by the number of months to get monthly qualifying income. The factor reflects that contractors cover their own costs; documenting lower actual expenses with a CPA letter can raise the income the lender counts.
The calculation, step by step
- Gather every 1099 from the qualifying period — 1099-NEC, 1099-MISC, and any equivalents. Missing forms must be accounted for.
- Total the gross earnings across all forms for the period.
- Apply the program's expense factor. Because contractors pay their own business costs, the program reduces gross earnings by a standard factor. The exact factor is set by the investor and varies by program.
- Divide by the number of months in the qualifying period (12 or 24) to get monthly qualifying income.
- Check the trend. If income declined year over year, underwriters typically anchor the calculation to the lower year rather than the average.
If your real business expenses are lower than the standard factor assumes, a letter from your CPA documenting actual expenses may allow the lender to use a smaller reduction — increasing the income that counts toward qualification.
Worked example
Illustrative example — not a quote or commitment to lend.
A consultant's 1099s show $110,000 in year one and $130,000 in year two — $240,000 total over 24 months. The program applies its expense factor to the $240,000 (the factor is set by the investor; the number used here is for illustration only), leaving the adjusted earnings, which are then divided by 24 to produce monthly qualifying income. Because income grew year over year, no declining-income adjustment applies. If the trend had reversed — $130,000 then $110,000 — the underwriter would typically anchor to the lower, more recent year.
Important exceptions
- Declining income: a downward trend usually means the lower year's earnings drive the calculation.
- Multiple 1099s from many payers are summed together — the calculation doesn't care how many clients you have.
- Gaps in 1099 history (a year with no 1099 income) can disqualify that period or require explanation.
- Reimbursed expenses shown separately from earnings are generally not counted as income.
Gross 1099 earnings vs. net tax-return profit
| Feature | 1099 loan calculation | Conventional (tax-return) calculation |
|---|---|---|
| Starting point | Gross 1099 earnings | Net profit after deductions |
| Expense treatment | Standard program expense factor | Your actual claimed deductions |
| Effect of write-offs | Write-offs don't shrink the starting number | Every write-off reduces qualifying income |
| Who it favors | Contractors with heavy deductions | Contractors with minimal deductions |
Authoritative sources
- Consumer Financial Protection Bureau — Ask CFPB: plain-language answers on mortgages, including how lenders verify income and ability to repay.
- HUD-approved housing counselors: free or low-cost guidance on the homebuying and mortgage process.
For Non-QM specifics, program guidelines vary by investor — confirm current requirements with us before relying on them.
Related NonQM Rates resources
- 1099 & Self-Employed Loans — full program overview
- How 1099 Workers Qualify — blog deep dive
- Payment Comparison Calculator — compare monthly payments
- Can 1099 contractors get a mortgage without tax returns?
- Bank statement loan vs. 1099 loan — which is better?
What should I do next?
Find out if you qualify — it takes about 60 seconds
Tell us about your income and your goal, and a NonQM Rates specialist will map your options. No Tax Returns Required.
Check My Eligibilityor call 949-241-9489
Guidelines vary by investor and are subject to change. Educational content only — not loan advice. Not a commitment to lend.
