6 Alternative Mortgage Options For Entrepreneurs And Sales People
Securing a mortgage can be a real headache for entrepreneurs and sales folks living off 1099s. Been there, done that—I get the struggle to prove steady income when your paycheck fluctuates more than the stock market. Don't worry; I've scoured resources far and wide to bring you six game-changing mortgage options tailor-made for your unique financial landscape. Dive in and let's turn those home-owning dreams into reality—trust me, it's simpler than you think!
Key Takeaways
Entrepreneurs and salespeople often need special mortgage options because their income from 1099s can be less steady than W-2 income.
Seller financing, cosigners, joint mortgages, non-qualified lenders, bank statement loans, and asset-based loans are all possible alternatives for non-traditional borrowers.
Finding a lender that specializes in self-employed or 1099 contractors can help secure a mortgage; these lenders understand the unique financial situations of entrepreneurs and commissioned salespeople.
Being prepared with at least two years of income history through tax documents like IRS Form 1099s, profit and loss statements as well as personal savings information is important for approval.
You might need to make a larger down payment when securing a mortgage without traditional employment proof. This shows lenders you're serious about homeownership.
W-2 vs 1099
Alright, let's dive straight into the nuts and bolts of the financial world. You're hustling out there, making deals and growing your business, but when it comes to getting a mortgage, the game changes. It's like being a player on a basketball court and suddenly finding yourself in a chess match. The tax forms you're dealing with, W-2 versus 1099, can make or break your mortgage application. Here's the lowdown:
| Aspect | W-2 | 1099 |
|---|---|---|
| Issuer | Employers | Clients or entities hiring freelancers/contractors |
| Recipients | Salaried employees | Freelancers, contractors, and entrepreneurs |
| Tax Information | Shows taxes already withheld from income | Indicates gross income, with no taxes withheld |
| Income Verification for Mortgage Application | Favored by lenders for its consistent income proof | Requires additional proof of stable income |
| Mortgage Application Process | Eases the mortgage application process | Often leads to a tougher time securing a home loan |
| Employee Benefits | Employee benefits included (healthcare, retirement plans, etc.) | No employee benefits; self-employed individuals cover their own |
| Job Security | Job security can be higher, affecting loan approval rates | Income can be sporadic, leading to stricter lending requirements |
Who receives a 1099?
Freelancers, independent contractors, gig workers, entrepreneurs, and some commissioned sales people get a 1099 form. If you're self-employed, growing your side hustle, or are involved in door to door sales, you’ll see this form come tax time..
It's for folks who aren't regular employees but still earn money working their own hours or running their businesses. Getting one means you’re your own boss; it shows the IRS exactly how much you made without having taxes taken out yet.
Challenges for getting a mortgage as a 1099 contractor or commissioned sales person
Okay, you're a 1099 contractor or commissioned salesperson. You face unique challenges when you try to get a mortgage. Getting approved can be tough. Your income might change from month to month.
This makes lenders nervous—they like steady paychecks that W-2 employees have.
You need at least two years of self-employment under your belt. Lenders will ask for it. They want to see tax returns and bank statements too. Sometimes they'll want a bigger down payment because your income is less predictable than someone with a regular job.
This can make the home buying journey feel like an uphill battle, but knowing what's ahead means you're better prepared to tackle it head-on!
Traditional 1099 Mortgage Solutions
Before we get to the alternative mortgage solutions, there are a few things you can do to get a traditional mortgage despite not having the preferred income that lenders look for.
I would recommend starting your mortgage process with the traditional route outlined in the next few sections, before deciding if the alternatives options make more sense.
Here are the steps to take to see if a traditional mortgage is in the cards for you at your current stage.
Identify self employed specific lenders
Look for lenders specializing in self-employed mortgages. These guys understand the ups and downs of your income.
Go with lenders that offer 1099 mortgage loan programs. They might ask for at least one year of 1099 forms to show consistent work.
Seek out smaller banks and credit unions. Sometimes, these places are more flexible with their lending criteria.
Check out online mortgage lenders. They often have less overhead, which might mean better deals for you.
Ask other self-employed friends where they got their home loans. Word of mouth can lead you to some great options.
Work with a mortgage broker. Brokers do the legwork and help find multiple lender options that suit you.
Provide 2 years of income history and other financial documentations
Most lenders want to see 2 years of income history in your current role before approving your loan. This gives the lender confidence that despite having a variable income, you can afford to make your mortgage payments.
Here are all of the documents you will want to have handy as you start booking meetings with lenders.
Grab those IRS Form 1099s from the past two years. They prove how much you've earned.
Collect your bank statements, too. They show your cash flow and savings.
Find your profit and loss statements if you have them. Lenders love seeing your business health.
Don't forget a list of your debts and monthly expenses. It helps figure out your debt-to-income ratio.
Keep handy any proof of additional income that might help, like from side hustles or investments.
One thing to be aware of is your business write off situation. As a 1099 contractor, you’re able to write off business expenses which will reduce the amount of tax you owe at the end of the year.
It’s a great tool that makes being a business owner extremely attractive. But it can be a double edged sword when trying to invest in real estate.
If you made $100K doing door to door sales, but you wrote off $60K from your travel, training, marketing etc. the income you would report is $40K. That is the number lenders would look at to determine if you qualify for a mortgage.
So if you know purchasing real estate is in your near future, make sure to consult with a qualified tax professional to advise you on your write-offs and how to prepare your taxes with qualifying for a mortgage in mind.
Higher Down Payment
Showing two years of solid income is important and can increase the likelihood of getting a mortgage, but for us self-employed folks, closing on that home often means stepping up with a bigger down payment on a house.
We're proving that we're serious about our commitment to owning a home.
The more cash you put down upfront, the less risky you are to mortgage companies. Think of it like this—you’re sort of sweetening the pot so they feel more comfortable lending to someone without traditional paychecks.
This isn’t always feasible and it isn’t always recommended. There is an ongoing debate in the real estate world about how much you should put down.
One camp is passionate about putting down 20% to avoid PMI - and increase your chances of qualifying for a mortgage with a 1099.
The other is all about minimizing your out-of-pocket expenses and putting down as little as they’ll let you in the hopes of maximizing your returns on the real estate investment.
To help you find the best path for you, I recommend working with a trusted real estate agent who is ideally a real estate investor herself, to help you navigate through these sometimes murky waters when it comes to down payments.
Alternative 1099 mortgage solutions
If you’ve made it this far, you’ve either attempted to get a traditional mortgage and were denied or you simply prefer to do things off of the beaten path, which makes sense since you wouldn’t be here if you weren’t an entrepreneur. Either way, let’s explore the 6 alternative paths you can take to get into that home sooner rather than later.
Seller Financing
I've got to share this game-changer with you - seller financing. Imagine cutting through the red tape of banks and scoring a home loan directly from the person selling you their house.
It's like they're saying, "Let me help you buy my place." They become your lender, setting up a deal that works for both of you.
With seller financing, you don't have to prove myself to traditional mortgage lenders who might not get how you make your money as an entrepreneur or sales pro. The down payment might be steeper and the repayment time shorter, but the flexibility can make it well worth it.
Plus, you can negotiate terms that fit your unique situation—no one-size-fits-all drama. This can be your golden ticket if regular loans have shown you nothing but closed doors.
Seller financing was how I was able to buy our first property. Not only did seller financing enable me to purchase the home I wanted, but the property also came with a lower interest rate than the current going rate. Not to mention that I avoided all of the typical closing costs.
Of course, it’s all upside with seller financing, there are certainly more risks, and things can get really nasty if you default on your payments.
If you consider selling financing, I would make sure to work with a great real estate agent, and likely a lawyer as well.
2. Work with a Cosigner
As we’ve been talking about, getting a mortgage as an entrepreneur or sales pro can be tough. But a cosigner could be your secret weapon. Someone who's got your back and stands with you, saying to the banks, "I believe in this person."
So if you don’t have 2 years of income history or your financials are all over the place, bringing in a cosigner will likely tip the scales.
Think of them as your financial wingman—the kind that helps you lock down that loan when you're not quite nailing those lender checkboxes on your own. And hey, it's not just about getting approved.
A good cosigner can snag you better rates too because lenders see less risk. The main trouble will of course be finding someone willing to be your cosigner. For many guys, the best option is their parents but a trusted friend or mentor may also be willing to cosign on a loan for you.
As a cosigner, they take on a degree of responsibility and risk if you’re not able to make the payments, plus it goes on their credit, so if you are able to land a cosigner, make sure to at least treat them to dinner as a thank you!
3. Joint Mortgage
Having a cosigner can be a huge boost, and taking it up a notch, consider diving into joint mortgages. These are not your average loan deals—they're teamwork in action! You team up with someone else, maybe a business partner, a friend, or a spouse who's got stellar credit or more stable income.
This partnership can open doors to borrowing more money and grabbing better mortgage rates together.
Plus, they might just give us access to loans we'd struggle to get flying solo because of our unconventional cash flow. It's all about showing we've got the backup to handle homeownership responsibly!
If your husband or wife, friend, brother or sister, etc. works a stable job, gets a W-2, and you don’t mind going in on a house together, this can be a great option!
4. Non-qualified mortgage lender
Another option that you might consider, is working with a non-qualified mortgage lender.
These lenders look beyond the usual paperwork and get real about how we make our money. With programs like CCM’s 1099 mortgage loan, they offer terms that actually fit your unique cash flow – think 15 to 40 years or adjustable rates that work in all 50 states! Just make sure at least half your income comes from 1099 work to qualify.
It's pretty straightforward: show them the money (your bank statements), and they'll help pave the way to your new front door.
It’s important to note that because these lenders are taking on more risk by working with you, they are going to charge you a premium for that privilege.
Be prepared to pay additional fees and a higher interest rate by working with a non-qualified mortgage lender.
5. Bank statement mortgage loan
Pretty self explanatory, a bank statement mortgage goes off of your bank statements rather than your tax returns. This is a great option for entrepreneurs and 1099 contractors who write off the majority of their income.
Because while your tax return might say that your bordering the poverty line, your bank statements tell a completely different story.
Similar to working with non-qualified mortgage lender, a bank statement loan will also likely include additional fees and a higher interest rate but very well may be worth it, especially if your tax bill is low.
6. Asset based mortgage loans
Bank statement mortgage loans seem like a sweet deal, but there's more to explore. Let's dive into asset based mortgage loans. They turn the tables on traditional lending by focusing on your assets instead of income.
This is a great option for more established business owners and successful sales people.
Picture this: You've got solid investments or significant savings but your monthly cash flow doesn't tell the whole story. That's where asset-based mortgages come in.
Here’s how it works—lenders look at your assets and decide if you can cover loan payments for a certain period with them. This option is especially handy if you're a young entrepreneur or commission-based salesperson.
Why? Because sometimes what you earn fluctuates but what you own remains constant. It could be stocks, bonds, other properties, or even retirement accounts backing up your loan application—not just paychecks.
Just remember that lenders might require more down payment, so make sure those assets are ready to work hard for your home dreams!
Conclusion
Let's wrap this up. If you're an entrepreneur or salesperson, getting a mortgage might seem tough, but it's not impossible. You've got options—from seller financing to bank statement loans that look at your actual cash flow.
Remember, cosigners and joint mortgages can also help you get that home sweet home. Just be ready with your paperwork and be willing to explore all the possibilities out there for non-traditional borrowers! With a little persistence and some creativity, you’ll be sleeping in your new home before you know it!
FAQs
1. What's a good mortgage option for self-employed entrepreneurs?
For self-employed folks, look into a bank statement loan. Instead of W-2s, you'll show your bank statements to prove income—really handy if your business expenses or deductions make your income seem lower than it is.
2. Can salespeople with commission-based incomes get a different type of mortgage?
Yes! If you earn money from commissions, an adjustable-rate mortgage (ARM) might be up your alley. Your initial interest rate stays low so that higher earnings later can cover when rates adjust.
3. Is there help for real estate investors who want to refinance but have lots of write-offs?
Indeed! Check out the “no-doc” loans; they don't dig much into income paperwork like tax returns where your depreciation and other write-offs live—real sweet for keeping things simple.
4. I'm an entrepreneur with ups and downs in my credit history—is getting a mortgage hopeless?
No way—it's not all doom and gloom! FHA loans are forgiving on less-than-perfect credit scores, plus they've got benefits like lower down payments. Definitely worth checking out!
5. Are there any government-backed loans suitable for gig economy workers?
Absolutely! USDA loans are great—they're tailored for rural areas but don't let that fool you; many places qualify as "rural." Plus, they often come without the need for down payments—score!
6. My friend mentioned something about federal programs Fannie Mae and Freddie Mac; what are those about?
Those two are big names in mortgages—for good reason too! They offer “conforming loans,” which basically means they match certain criteria set by Fannie Mae and Freddie Mac—and usually come with solid interest rates.
