Mortgage approval with W2 and 1099 income

[Homehuntermama]

I have W2 FTE income which I can provide proof on returns over 2 years, but I also have 1099 income which I only have 1 year of financial statements so far. Is it still possible to find a lender that will accept both?

[ShanetheMortgageMan]

Income reported on form 1099 is usually self-employment, which you would then report on Schedule C of your tax return.  With self-employment typically 2 years of tax returns reporting that income required, but there are some programs or situations that will accept just 1 year - for example if you were working as a W-2'd employee for at least 2 years and then directly went to the same job being a 1099'd employee then underwriters can make an exception.  In your situation you are working a W-2 & 1099 job, so the additional job would be considered secondary employment which almost always needs a full 2 years to be able to use.  If your 1099 income is something else let us know as it could change info that is applicable to you.

[Homehuntermama]

@ShanetheMortgageMan Your assessment is correct. I starting earning the secondary income with 1099 in 2021 and reported it on schedule c of my return. So with two years of tax returns, the 2020 return would show a much lower income than the 2021. So I couldn't use that increase in income as an advantage to increase my buying power until I've reported it over two years? In that case I wouldn't be in a position to purchase until next year.

[ShanetheMortgageMan]

---

@Homehuntermama wrote:

@ShanetheMortgageMan Your assessment is correct. I starting earning the secondary income with 1099 in 2021 and reported it on schedule c of my return. So with two years of tax returns, the 2020 return would show a much lower income than the 2021. So I couldn't use that increase in income as an advantage to increase my buying power until I've reported it over two years? In that case I wouldn't be in a position to purchase until next year.

---

Correct, there'd be a very strong likelihood that the underwriter will want to see 2021 & 2022 tax returns Schedule C to use the 1099 income.  The income from it will be averaged out.  Here is a post I made awhile back showing you how to calculate how much qualifying income will be used from your Schedule C.

When using W-2 income tax returns are rarely needed, the income is rarely averaged and your current income will probably be used to qualify.  Situations where W-2 income is averaged is when overtime, commission or bonus income is being used... or if it's irregular hours or part time employment then averages are usually considered.

[Homehuntermama]

@ShanetheMortgageMan That post was really helpful thank you!

[Househunter121]

I have 1099 that I didn't file for 2021, but would like to use it in my 2 year Dti, do i need to do an amended return to include it?

[ShanetheMortgageMan]

---

@Househunter121 wrote:

I have 1099 that I didn't file for 2021, but would like to use it in my 2 year Dti, do i need to do an amended return to include it?

---

If you want to qualify for the best possible mortgage terms, then yes, it'd need to be reported on your tax returns under a Schedule C.  The net income (+ possibly adding some expenses back in) is what underwriters go off of.  Usually 2 years tax returns are needed, but some situations may only need 1 year.