How to Qualify for a 24-Month Bank Statement Loan as a 1099 Contractor

The Quick Read: A 1099 contractor qualifies by showing two years of clean, consistent deposits in an account that clearly belongs to the business or the borrower, then clearing a lender’s expense factor, credit, reserve and leverage tests. The loan is reviewed on documented income under the applicable program, subject to lender guidelines, instead of the net profit on a tax return.

• Underwriters add up eligible deposits, strip out transfers and refunds, and divide by the months in the window.
• Business-account deposits usually take an expense factor. The lender sets it, and a documented lower factor needs proof.
• Twenty-four months smooths out slow seasons. It also pulls in a weak early year.
• Occupancy decides which rules apply. Owner-occupied files and rental files are handled differently.
• Debt-to-income headroom runs out as you add financed rentals, which is when many investors turn to DSCR.

Does a 1099 Contractor Fit This Loan?

Yes, if your deposits are steady and your tax return understates what you actually earn. That gap is the reason the product exists. A contractor who writes off vehicles, tools, insurance and subcontractors can show a small net profit while the business account tells a much bigger story.

Scotsman Guide describes these loans as non-QM products that let self-employed borrowers qualify on actual income, and it names contractors and plumbers among the typical borrowers. It also notes that a typical file uses 12 to 24 months of statements and consistent monthly deposits.

Across the lenders the brokerage places files with, the fit usually comes down to four things:

• A real self-employment history. Most programs want about two years. A shorter history can sometimes work, but that is a program-sheet question.
• Deposits that look like a business, not a few lumpy windfalls.
• Credit and reserves that meet the program’s minimums.
• A property and occupancy type the program accepts.

If you only recently moved from W-2 work to 1099 work, expect more questions. Continuity in the same trade helps. A letter explaining the move, plus your first contracts and invoices, makes the file easier to read.

Why Choose 24 Months Instead of 12?

Pick 24 months when your income swings by season or by project. Pick 12 when the last year is clearly your strongest and the earlier year was thin. Most programs the brokerage works with start at 12 months of statements. Some lenders offer or prefer a 24-month average, and the lookback is set by each lender’s program sheet.

The logic is simple. A 12-month window that catches only your busy season overstates what you earn in a typical year. A 24-month window is more representative. The same window can hurt you if the earlier year was weak.

For a deeper side-by-side, see Lendmire’s piece 12-Month vs 24-Month Bank Statement Loan: Which Gives You More Income?.

How Underwriting Turns Deposits Into Income

Underwriters follow a set sequence. The exact numbers change by lender, but the steps barely do.

1. Choose the documentation path. Most contractors use bank statements. Some programs instead count 1099 forms with a fixed expense treatment.

2. Choose the account type. Business statements get an expense factor. Personal statements often skip it, though a lender may still ask for a profit-and-loss statement or an accountant letter.

3. Submit every page. All 24 months, every page, every transaction visible.

4. Screen the deposits. Transfers between your own accounts, loan proceeds, refunds and one-time windfalls come out. What remains are eligible deposits.

5. Average them. Eligible deposits divided by the months in the window. Over 24 months, that is 24.

6. Apply the expense factor to business-account deposits.

7. Adjust for ownership if the account is shared.

8. Test the result. The qualifying income goes against the new payment and your other debts. Credit, reserves, LTV and property eligibility are tested too.

The expense factor is the swing variable. The lender sets it, not the borrower. Some programs accept a lower factor if a CPA-prepared profit-and-loss statement or a tax professional’s expense letter backs it up. Without proof, the default applies. No single formula governs every lender, so never plan around a number you heard from a friend.

Here is a modeled illustration, not a program promise. Index your average monthly eligible deposits to 100 points. If a lender applied a 40% expense factor to a business account, qualifying income would be 60 points. If a CPA letter supported a 25% factor, it would be 75 points. Same deposits, a very different result.

Now the window. Say your first 12 months averaged 80 points and your latest 12 averaged 120. A 12-month file shows 120. A 24-month file shows 100. If your income is rising, the longer window costs you. If it is flat or seasonal, the longer window protects you from an overstated number.

One more point: these are fully underwritten loans on verified account activity. They are not the stated-income products people remember from before the housing crash.

Which Account Should a Contractor Submit?

Submit the account that cleanly shows your client payments. Co-mingled accounts raise questions, and a clear paper trail beats a slightly higher average.

If you have been depositing 1099 income into a personal account, that is workable. Personal statements often skip the expense factor, but a lender may still want proof that the deposits are business income. If you are about to open a business account, do it well before you apply, so the window shows a clean pattern.

Deposits That Get Flagged

Underwriters read statements line by line. These are the items that most often cause trouble.

Gaps matter too. A missing month, a mid-period bank switch, or a stretch of tiny deposits invites a letter of explanation. Write one that says what happened, in plain words, and attach support. Keep it short.

Do 1099 Forms Have to Match Your Deposits?

They do not have to match to the dollar, but you should be able to explain the difference. The IRS instructions for Forms 1099-MISC and 1099-NEC say Form 1099-NEC reports nonemployee compensation. Payers file it, and not every payer does. Some clients pay small amounts without issuing a form. Others report on a different schedule than they pay.

So a bank-statement file usually runs on deposits, while a 1099-based program runs on the forms. If you submit both, expect the underwriter to compare them. A statement total above your 1099 total is normal when some clients did not file. A 1099 total above your statements is a flag, and you will want to explain it.

Contractors with minimal real overhead sometimes do better on a program that counts 1099 income with a light fixed haircut. Contractors with heavy real expenses may do better with a documented factor on statements. Ask your broker to run both and compare.

Leverage, Credit and Reserves

Leverage depends on occupancy and transaction type. The ranges below are typical for select lenders in Lendmire’s wholesale network and are subject to lender guidelines.

Stronger files earn the top of each range. Loan sizes generally run from $125,000 to $3,500,000. Reserves commonly sit around six months of the housing payment. Credit minimums vary by lender and by leverage, and a lower score typically means lower leverage.

Occupancy also decides the disclosure regime. An owner-occupied file is a consumer mortgage, and TRID disclosures apply. A bank-statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from TRID. Short-term rental rules can vary by city, county, HOA and property type, so confirm local rules before relying on projected rental income. Consumer mortgage licensing for this lane covers 16 states.

Non-QM does not mean no underwriting. On consumer-purpose loans, the CFPB’s ATR/QM compliance guide lists eight minimum factors lenders must consider, including income, employment, debts and credit history. It also says creditors verify the information with reliable third-party records. Bank statements serve as that verification.

For rentals, a separate point applies. Business-purpose investor loans are reviewed differently from a standard owner-occupied mortgage.

When Another Path Fits Better

A 1099 contractor building a rental portfolio has two levers: personal income and property income. The choice can be made property by property.

Bank-statement qualification feeds your personal debt-to-income ratio. Each financed property adds a payment, so headroom shrinks as the portfolio grows. DSCR files test the property’s rent against its own debt, so they avoid personal DTI. Many investors keep bank statements for a primary residence and move rentals to DSCR. Lendmire’s complete DSCR loans guide covers that lane in full.

DSCR programs run best when rent comfortably covers the full monthly obligation. Select lenders in the network offer programs below 1.00 coverage, but LTV and terms adjust. If rent is thin or new, bank statements may be the easier route. For a closer look, read Lendmire’s piece DSCR Loan Vs Bank Statement Loan For Investors.

A Prep Timeline for the Months Before You Apply

Your 24-month window is already running, so use the time before you apply to tidy it up.

• Six months out: open a dedicated business account if you do not have one. Route all client payments there.
• Five to three months out: stop mixing personal spending with business deposits. Pay yourself by clean transfer.
• Three months out: ask a CPA about a profit-and-loss statement if your real expenses are low.
• One month out: avoid new credit, large unexplained deposits and account changes.
• At application: gather all pages for the full window, 1099 forms, a business license or contracts, and ID.

Common Reasons for Decline, and Fixes

If your weak stretch is recent, no amount of paperwork hides it. The honest fix is time, or a different path.

Key Terms Defined

Bank statement loan: a non-QM loan that is reviewed around average deposits instead of tax-return net profit.

Eligible deposits: the deposits left after transfers, loan proceeds, refunds and one-time windfalls are removed.

Expense factor: the percentage of business deposits a lender assumes goes to expenses.

Lookback window: the number of months of statements the lender averages.

1099-NEC: the form a client files to report payments of nonemployee compensation to you.

DTI: your monthly debts divided by your qualifying monthly income.

DSCR: a ratio that compares a rental’s income to its own debt payment.

Next Steps

If you are self-employed and want to see how the numbers work, Lendmire can help you compare bank statement loan options based on your deposits, the property, credit profile, leverage, and your goals.

This article is educational and is not a commitment to lend. It is not legal or tax advice. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional or attorney before relying on any deduction or legal conclusion.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Lendmire was recognized as a Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.

References

1. Scotsman Guide: Don’t Shut the Door on Quality Borrowers

2. IRS Instructions for Forms 1099-MISC and 1099-NEC

3. CFPB ATR/QM Small Entity Compliance Guide