The Realtor’s 1099 Mortgage Playbook

The guide in brief

1099 mortgages for real estate agents: the guide in brief

Here is a plain summary of the main points in The Realtor’s 1099 Mortgage Playbook, written for real estate agents, brokers and other commission earners paid on a 1099 who are buying or refinancing their own home. The full guide goes further, with the moves to make before you apply and the questions to ask any lender. Programs, terms and pricing vary by program and by file.

Why your own deals do not add up on paper

You write off what you legally can, because that is smart at tax time. Then you go to buy your own home, and a conventional lender reads that same return and counts the income left after the write-offs. Mileage, marketing, desk fees and the phone all lowered your taxable income, and they lower the income an underwriter is allowed to use. That is why a producing agent can still hear a no. It is not personal; it is which document the lender reads.

A program built for people paid on a 1099

A 1099 loan is a separate kind of program for independent contractors and commission earners, and real estate agents are a natural fit. Instead of tax returns, the lender uses the 1099 forms themselves, starting from your gross commission rather than the income left after deductions. It is not a stated-income loan: your income, credit, savings, the appraisal and your debts compared with your income are all still checked, and for a home you live in the lender must make a good-faith decision that you can repay.

How the expenses are handled

The write-offs on your return do not get a second chance to shrink the figure. Instead, the program applies one way of allowing for business expenses. In most programs that is a standard allowance taken off the 1099 total, which suits an agent who does not carry heavy overhead. Where your overhead is genuinely higher, some programs allow more, and some let a profit and loss statement prepared by a CPA, an enrolled agent or another tax professional document your real expenses instead. Which method fits depends on how your business really runs.

How the income is worked out

The lender totals your 1099 forms, takes off the expense allowance, and averages what is left by month over the period the forms cover. It also obtains the IRS record of your 1099s, so the forms and the record agree, and checks that the income is still coming in this year, with recent commission statements or bank statements. A normal or growing year supports the file; a year running well behind the last one will draw questions.

The documents to have ready

• your most recent 1099 forms;
• proof of this year’s earnings, such as commission statements with year-to-date totals, or recent bank statements;
• your permission for the lender to obtain the IRS record of your 1099s;
• if you use the profit and loss route, the statement prepared by your tax professional;
• statements for the down payment, closing costs and savings after closing, and a short note on any large or unusual deposit;
• photo identification.

The honest part, and the moves to make first

This program is not always the cheaper answer. If your tax returns already show strong income, a conventional loan read from those returns may cost less, so ask a lender to price both and choose with the figures in front of you. Before you apply, talk to a lender before you file your next return, and bring your CPA into that conversation, because a return written to lower your taxes and a file written to show your income are not always the same thing. Keep your commission deposits landing in one clean, consistent account. Avoid large unexplained deposits, and write a short note for any you cannot avoid. And do not open new credit or finance a big purchase once the process starts.

To see how the income is worked out step by step, read our 1099 loans page. If you own a brokerage or another business rather than being paid on 1099 forms, see bank statement loans.