How to get a loan with only 1099 income?

Question

So I was wondering how is someone like myself who's sole income is based on 1099 is able to qualify for a loan? Most of my income from the past 5 years come from my Network Marketing/Home Based business which is a double edged sword. The good thing about this type of income is I get to write of around $50k/year in business expenses that I would normally need for my everyday life anyway, like my rent, nutritional product purchases, car, travel expenses etc. The bad thing is I show no income on my tax return which makes it difficult to build my real estate business.

Should I not use the write off's and pay extra taxes just to show an income? Or is there better ways around this? What are my options?

Stephanie Medellin · Answer

Using bank statements to qualify is also an option, you just need to find a local broker that offers those programs.  There are more and more options for "alt doc" loans.  The rates are going to be higher than conventional but you can still get financed.

For those that have a lot of assets (like Cody's $100 million example) there are asset depletion loans.  Qualifying is based off of available liquid assets.

You won't get the same low rates that you would with conventional loans with stricter underwriting criteria, but there are alternative options.  There are also plenty of lenders that will loan on cash flow of the property.  For this you will need a larger down payment.

Stephen Bighaus · Answer

As a lender self employed borrowers sometimes do create a challenge for Conventional Lending. I would never recommend a borrower to reduce his tax write offs to qualify. You have commercial and portfolio lenders who base the qualification off of the debt service of the property.

Cody L. · Answer

I know a lot of investors that have negative income on tax returns (and some that I don't know, like our president).   With negative income on tax returns, you can still get a commercial loan (if you have other things going for you admittedly).  But with residential, they won't finance you at all.  Or even refinance you to a lower rate / lower payment.   When I tried to refinance my primary home I was denied because they said they didn't think I could make the payments.  I said "Uh, I've made the payments for 15 years.  If I refinance, my payment will be lower".   And this was the bank that has my CURRENT LOAN.  Yes, my current lender was worried that if my loan payment was lower, I couldn't make my loan payments.

It's not their fault.  Residential lenders can only do what the government tells them to do.  And the government wants tax income to be what proves repayability.  Because then those same bankers tell people like you to take less write offs and pay more taxes.

Cody L. · Answer

If they did I'd just pay it off.  Fine with me.   It's in the high 5s and I have plenty of cash rotting at 1%.  So I could easily "make" 5.8% on my money by paying off my loan.

Which is another reason banks are dumb.  There is no logical decision making.  If I talked to a banker about my sitatuation he'd say "Yeah, I know.  It's a safe loan.  We're just only allowed to loan based on..."   They're not lenders. They're loan originators.  They have no decision making or critical thinking when it comes to doing the loan.  They're all the same.  You either fit into the box with your credit score + DTI (based on taxes) or you don't.

What if one day an investor sold all their properties, put $100m in the bank.  He'd have a huge tax event that year.  But 3 years later, if all that $ was in a 0% rate money market, he'd have $0 "income" yet $100m in the bank that he could easily draw off of till he died.   Yet he wouldn't qualify to refinance a $100k home.

Sure, that makes sense.

Andrew Postell · Answer

@Justin Westmoreland just because you have $0 taxable income doesn't mean you won't qualify for a loan.  Even a conventional loan can still qualify people with $0 taxable income.  Not only should you write everything off you should have a good mortgage person review your returns to see if there are better methods and more items to write off.  Business miles is the most common one I see.  I wrote a pretty lengthy article on this subject back during tax time.  Here the link if you want to check it out:  https://www.biggerpockets.com/forums/311/topics/406411-helpful-investor-tax-return-hints

Mark Whitted · Answer

@Cody L. Hope the current bank isn't now going to call the CURRENT loan! lol

Will Barnard · Answer

What is your investment strategy? Buy and hold, flip, or ?

Private money, hard money, joint ventures, owner financing, sub2 purchases are all ways to fund deals non conventionally. You actually have many options, just need to name your strategy.

How to get a loan with only 1099 income?

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