I’ve been self-employed for 14 years, but about 1.5 years ago, I switched to a higher-paying 1099 contract role. My income went from $30k on my 2022 tax return, to $90k in 2023 (for 8 months of the new job), and I expect over $130k on my 2024 return after deductions.
My middle mortgage credit score (FICO 5, 4, and 2) is around 755. I’d like to buy a house in the $350k - $400k range with 20% down before my lease ends in January 2025. I’ll reach 2 years in the new job by April 2025.
Does it make a difference if I apply in February 2025 after filing my taxes, or should I extend my lease and apply after reaching 2 full years in July 2025? I need to decide on extending my lease soon. Thanks in advance!
Assuming you’re still filing a schedule C with your 1099 job, you’ll want to start the application process now to see if you qualify. Generally, conventional loans need 2 years of tax returns to average your monthly income, but sometimes the automated underwriting system (DU and LP) allows just one year.
With your credit profile and long self-employment history, there’s a good chance this could work for you. Have your lender try both Fannie Mae and Freddie Mac systems to see if they can waive the 2-year requirement. But keep a backup plan just in case, as automated systems can be unpredictable.
Since you’re planning to file taxes early 2025, filing in person at the IRS office and getting a stamped copy can help avoid delays while transcripts process.
@Ellis
From my experience, if you’ve had business ownership for over 5 years, one year of tax returns usually works, as long as you have proof, like a state business license.
Blue said: @Ellis
From my experience, if you’ve had business ownership for over 5 years, one year of tax returns usually works, as long as you have proof, like a state business license.
That depends on DU findings, but sometimes it will still ask for two years.
@Ellis
Thanks for the advice! My income is 1099, paid weekly by direct deposit. I was planning to e-file with a CPA’s help, but you mentioned filing in person. Wouldn’t the electronic 1040 and schedule C copies work just as well for the mortgage?
Also, do I need to pay the full tax balance when I file in January, or can I wait until April while using the 1040 to apply in February?
@Ashton
Mortgage lenders typically need an IRS transcript, which can take time to be available after e-filing. Filing in person and getting a stamped copy might help avoid delays while waiting for transcripts. You’d likely need to pay your balance when filing in person, but check with your loan officer to confirm.
@Ashton
Yes, and if you have a state business license, make sure it’s up-to-date. Judgments and liens can complicate things. I once had an old $300 judgment on my record from a video rental! Clean credit helps, though.
@Devi
Wow, that’s rough! Thanks for the info. My credit has no judgments, and I paid off my student loans last year. No state licenses or LLC—just a sole proprietorship and one car loan for $350/month.
If you’ve been self-employed for 14 years, they’ll average your income over 2 years, possibly with a year-to-date P&L. Even though your recent work is a higher-paying 1099 contract, it’ll likely be treated as continuous self-employment income.
@Axelle
Thank you! It’s not the same line of work, though. I did web design for 14 years, making around $30k, then switched to commission-based 1099 work in a new field. Since my 2024 income is so much higher, I thought waiting to apply with my 2023 and 2024 returns would be better than using 2022’s lower income.
@Ashton
It depends on the situation. You could try applying with a loan officer first, but they’ll likely use your 2023 income of $90k until you file 2024 taxes.
Clare said: @Ashton
It depends on the situation. You could try applying with a loan officer first, but they’ll likely use your 2023 income of $90k until you file 2024 taxes.
Thank you for the advice! I’ve been self-employed for 14 years, but recently switched fields to a higher-paying 1099 role. I want to avoid credit hits until I’m sure I’m ready, especially since new construction incentives require using their lender. It sounds like waiting until January to apply might be best.