1099 vs. W-2: Why Your Mortgage Lender Keeps Saying ‘No’ (And How to Get a ‘Yes’)
By Jhenesis Mortgage Team | December 30, 2025
You’re earning six figures as a freelancer, consultant, Uber driver, or contractor. Your bank account shows strong, consistent deposits every month. Yet every time you apply for a mortgage, the lender says “No — your income doesn’t qualify.”
Sound familiar? You’re not alone. Millions of gig workers and 1099 contractors face this frustrating reality due to outdated “Ability to Repay” (ATR) rules that favor traditional W-2 employees.
The good news? There are proven mortgage solutions designed specifically for self-employed and 1099 borrowers that let lenders say “Yes” — often with better terms than you expect.
Why Traditional Lenders Reject 1099 Income
Conventional mortgages (Fannie Mae, Freddie Mac, FHA) require lenders to use your adjusted gross income from tax returns to determine qualifying income.
As a smart 1099 worker, you rightfully deduct business expenses — home office, mileage, equipment, marketing, health insurance, retirement contributions. These deductions lower your taxable income (great for taxes) but destroy your debt-to-income ratio for mortgage qualification.
Result: Even if you deposit $150,000+ annually, your tax return might show only $60,000 in taxable income — and the lender must use the lower number.
Non-QM Mortgage Solutions for 1099 & Gig Workers
Non-Qualified Mortgage (non-QM) loans bypass strict ATR rules and offer flexible underwriting. Here are the most popular options:
- Bank Statement Loans — Use 12–24 months of bank deposits (personal or business) to calculate income. No tax returns needed.
- Profit & Loss Only Loans — CPA or borrower-prepared P&L statement determines income.
- Asset-Based Loans — Qualify using liquid assets or investment accounts.
- DSCR Loans — For investment properties; qualify based on rental income only.
Take Our 1099 Mortgage Eligibility Quiz
See If You Qualify in Under 2 Minutes
1. How do you receive most of your income?
2. Average monthly deposits into your bank account over the last 12 months?
3. Your middle credit score is approximately:
4. How much do you have available for down payment + reserves?
Frequently Asked Questions
Why do 1099 workers get denied for mortgages even with high income?
Traditional lenders use tax returns to calculate income. 1099 workers often deduct business expenses, lowering taxable income and failing Ability-to-Repay (ATR) rules.
What mortgage options exist for 1099 and self-employed borrowers?
Non-QM loans such as Bank Statement Loans, DSCR Loans, Asset-Based Loans, and P&L Only loans allow qualification without tax returns.
What is a Bank Statement Loan?
A Bank Statement Loan uses 12–24 months of personal or business bank statements to calculate income by averaging deposits, bypassing tax returns.
How much down payment is needed for a 1099 mortgage?
Typically 10–20% down, depending on credit score, reserves, and loan program. Some programs allow as low as 10% with strong credit.
Can gig workers in Florida, Georgia, Maryland, or DC qualify?
Yes. Jhenesis Mortgage specializes in non-QM loans for self-employed and 1099 borrowers in these states.
Get Approved Where Others Said No
Don’t let outdated lending rules stop you from buying your dream home. Our team specializes in helping gig workers, consultants, and contractors get approved quickly and confidently.