Buying a house with 1099 income and tips

Asheville, North Carolina
Private Lending & Conventional Mortgage Advice
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Buying a house with 1099 income and tips

Sara Timko
Member since 2023 · 5 posts · 3 votes

Hello everyone,

I've been following Bigger Pockets for a while and working to get my credit ready for the best loan & interest rate possible. However, I've run into an issue that I haven't seen discussed much in my research. I work full time as a delivery driver where I receive a 1099 as an independent contractor. I have 13 months of work history, but lenders keep telling me I need 2 years of history. I also make tips as a waitress and even though my combined income from these 2 jobs is  around $88k, lenders also want 2 years of W2's from tipped income. 

I guess my question is, how can I get around having to wait an additional 1-2 years, and what types of loans or lenders might be willing to get me into my first property faster? 

I appreciate any and all leads! I plan to make real estate investing my primary occupation, but don't want to wait so long to get started.

Thank you so much,

Sara

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Mark Huneycutt
Investor · Asheville · Member since 2019 · 55 posts · 23 votes
3y

Same line of work previously can be used so if you have 11 months prior to the current 13 months as a delivery driver elsewhere or as W2 with the current employer, that would help you qualify with 1099 income on a loan at 10% down. Around 7.5%. interest rate. 

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  • Sara Timko
    OP
    Member since 2023 · 5 posts · 3 votes
    3y

    To be clear, 13 months of history with the delivery company, not in total. But from what I understand they only care about my current position(s).

    0Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    3y

    @Sara Timko..you need to find a good mortgage broker who is well versed in Non-QM programs, mainly 1099 only programs.  I'm just going to assume you have down payment funds available.  You will pay a higher rate, and will need more down payment than you can get away with going Fannie/Freddie conventional, but that's what I'd recommend.  Where are you trying to buy?

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  • Sara Timko
    OP
    Member since 2023 · 5 posts · 3 votes
    3y

    @Jared Rine,

    Thank you for the response! That's very helpful. I think that because I'm an independent contractor affiliated with a very successful company and I have a set schedule, a lender should be able to see that there isn't a ton of variability in my income or a risk of losing it. I was going to aim to get my first property locally here in Asheville so I can house hack it but I'm really open to anywhere that I can find a great deal. 

    0Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    3y

    Hi @Sara Timko. I agree with @Jared Rine that you'd likely have to consider a Non-QM program, meaning not traditional like Conventional or FHA, meaning a much higher rate, etc. Non-QM lenders are the same lenders we broker out to for DSCR loans. Due to their rates being high, due to the reputation of many of these firms being lousy, and due to the fact that it's harder to get an offer accepted when your financing type is "other" (instead of cash, conventional, or even FHA or VA), I'd probably wait to buy rather than going that route.

    Regarding your driving, it's technically "self-employment" in our world, and as such indeed cannot be counted until you have two years of such. Likewise, income from tips has to be treated the same as bonus, commission, and overtime, meaning we can't count it until you have a two year history. 

    One solution would be to find a coborrower, even one that won't live in the property with you. Another option would be start a new job where most or all of the pay is salary or hourly, in which case we could count all of that income right away. And if that new income is still too low to qualify you for a purchase in our pricey market, you could buy a 2-4 unit property, as a primary residence, and count potential rental income from the other units. For this approach, you'd want to use FHA because the down payment requirement would be 3.5% rather than the 15% or 20% that Conventional would require. To be clear, this needs to be truly multi-family, not just kind of. Meaning, even if the basement apartment has separate utilities, private entry, etc., the appraiser is going to say the "highest and best use" is single family, and that'll kill the opportunity to use rental income to help you qualify. Perhaps you've already seen, but we have very few 2-4 unit properties here, so you'd perhaps need to include border communities in your search.

    Hope this helps some.

    1Reply
  • Mark Huneycutt
    Investor · Asheville · Member since 2019 · 55 posts · 23 votes
    3y

    Same line of work previously can be used so if you have 11 months prior to the current 13 months as a delivery driver elsewhere or as W2 with the current employer, that would help you qualify with 1099 income on a loan at 10% down. Around 7.5%. interest rate. 

    2Reply
  • David Taylor
    Lender · Irvine, CA · Member since 2013 · 22 posts · 2 votes
    3y

    NonQM - Bank Statement, 1099, income qualifier will work.  Rates and required leverage are higher, BUT they are viable and common alternatives.

    0Reply
  • Thomas Beckstead
    Member since 2021 · 5 posts · 2 votes
    3y

    I am a 1099 contractor in sales. Between me and my wife all traditional lenders said our DTI was too high for a vacation home 2nd loan because they couldn't count my 5 months of income in my new role.

    Almost had to walk away from the deal which is what I told our agent. She referred me to champion credit union who didn't sell all their loans to fannie and freddie. I was able to get a 5 year ARM with 15% down, no PMI and 5.25% when rates were near the peak. I would try potentially reaching out to local credit unions. Champion kept their loans in house so they didn't have the same rules as traditional lenders.

    This was for a house in WNC that we relocated to as our primary 4 months later and kept our home back on the west coast as a rental. 

    0Reply
  • Nick BelskyBusiness Member
    Lender · Orlando, FL · Member since 2021 · 1k+ posts · 704 votes
    3y

    @Sara Timko

    There are non-QM lenders who will do 1yr or 2yr 1099 programs where you can combine with W-2 income. As many have outlined above, they are a little more pricey and require a lower LTV compared to conventional. But if you can afford to get into now, you can always refinance down the road once you will qualify for conventional and have the full 2yr of history.

    Cheers!

    [email protected]
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  • Ben Scarborough
    Realtor · Gulf Shores, AL · Member since 2020 · 153 posts · 76 votes
    3y
    Quote from @Sara Timko:

    Hello everyone,

    I've been following Bigger Pockets for a while and working to get my credit ready for the best loan & interest rate possible. However, I've run into an issue that I haven't seen discussed much in my research. I work full time as a delivery driver where I receive a 1099 as an independent contractor. I have 13 months of work history, but lenders keep telling me I need 2 years of history. I also make tips as a waitress and even though my combined income from these 2 jobs is  around $88k, lenders also want 2 years of W2's from tipped income. 

    I guess my question is, how can I get around having to wait an additional 1-2 years, and what types of loans or lenders might be willing to get me into my first property faster? 

    I appreciate any and all leads! I plan to make real estate investing my primary occupation, but don't want to wait so long to get started.

    Thank you so much,

    Sara

    I would recommend looking into DSCR loans! @Zach Edelman could help you out there.

    0Reply
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