The gig economy and rise of freelance work have led to an increase in the number of individuals earning 1099 income. If you're one of these workers, you know that the financial freedom you enjoy also comes with some unique challenges, especially when it comes to obtaining a home loan. However, there are strategies you can implement to lower your down payment, even with 1099 income.

Understand Your Loan Options

The first step to securing a home loan with a lower down payment is understanding the types of loans available to you. Different loans have different minimum down payment requirements:

• FHA: backed by the Federal Housing Administration, allow borrowers to put down a small amount of the home's purchase price. These loans are popular with first-time homebuyers and those with lower credit scores.
• VA Loans: If you're a veteran or active-duty military member, VA loans may be an excellent option for you. These loans, backed by the Department of Veterans Affairs, usually require no down payment.
• USDA Loans: The U.S. Department of Agriculture backs USDA loans. These loans are intended for rural and some suburban home buyers and often require no down payment.
• Conventional Loans: although they aren't backed by the government, some require minimal down payments, especially for first-time home buyers.

Building Your Borrowing Power: Credit Score and Documenting Income

Obtaining a home loan with 1099 income might present some unique challenges, but it's certainly possible to secure a loan with a lower down payment.

• Credit Score: A strong credit score can open more loan options and potentially lower your down payment requirements. Ensure you pay your bills on time, keep your credit utilization low, and monitor your credit report for errors.
• Documenting Income: Being self-employed or a contract worker doesn't disqualify you from obtaining a home loan with a lower down payment. However, you'll need to verify and document your income accurately. This may involve providing copies of your tax returns, 1099 forms, and bank statements for the past two years.
• Non-QM Options: Some lenders offer non-QM (qualified mortgage) loans for 1099 workers. These loans might consider other proof of income, such as bank statements, which can be particularly helpful if you've been in business for less than two years.

Work with a Knowledgeable Lender

A lender experienced in working with 1099 income earners can guide you through the process, helping you understand your options and what you need to do to qualify for a home loan with a lower down payment. They can also help you navigate the underwriting process and ensure you're adequately prepared.

Remember, every individual's financial situation is unique, so it's important to find a strategy that best suits your needs. To learn more about this topic, contact a professional near you.