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FAQs Non-QM Loans
Can you get a mortgage with 1099 income without tax returns? Short answer: yes. You can qualify for a mortgage on 1099 income without turning in tax returns by using alternative-documentation (non-QM) programs. The most common options are: •1099-Only mortgages – qualify using your 1099s (often 12–24 months) and limited bank statements instead of tax returns. •Bank-statement mortgages – qualify with 12–24 months of personal or business bank statements; no tax returns. Expect higher down payments/rates than conventional. •P&L-Only (CPA-prepared) – some lenders accept a CPA-prepared profit-and-loss statement (often with a CPA letter and a few months of bank statements). •Asset-depletion (asset-dissipation) – convert liquid assets into qualifying “income” by formula (e.g., assets divided by ~360 months). •For investors: DSCR loans qualify on the property’s cash flow (no personal income docs or tax returns). Note: many DSCR loans include prepayment-penalty structures—ask about step-downs like 5/4/3/2/1. What lenders typically look for •Time in business: generally ~2 years self-employed (varies by program). •Credit/LTV/reserves: ranges by lender; examples publicly show minimum FICOs around 600–700 and max LTVs ~80–90% depending on program and profile. Trade-offs to expect •Pricing/terms: non-QM programs usually carry higher rates/fees and larger down payments than conventional loans. DSCR loans often have prepayment penalties (though some lenders offer none—confirm terms). Fast prep checklist (what to gather) •Last 12–24 months 1099s and/or bank statements •CPA-prepared P&L (if going P&L-Only) + CPA letter if required •Proof of business existence (license, entity docs) and liquid reserves
12-month vs 24-month bank statement loans: which qualifies for more? Short answer: whichever gives you the higher average eligible deposits—so it depends on the income trend. Most lenders average 12 or 24 months of deposits, then apply an expense factor (often ~50% for business statements; lower with personal statements or a CPA letter). Formula: monthly income ≈ (total eligible deposits × (1 − expense factor)) ÷ number of months. Which usually qualifies for more? •If income is trending UP: 12-month typically qualifies for more (recent higher deposits aren’t diluted by last year’s lower months). Example: $40,000/mo avg deposits this year vs $30,000 last year, 30% expense factor → 12-mo: 40,000×0.70 = $28,000; 24-mo: ((40,000+30,000)/2)×0.70 = $24,500 → 12-mo wins. •If income is trending DOWN or seasonal: 24-month often qualifies for more (longer period smooths dips). Example: $25,000 this year vs $40,000 last year, 30% expense factor → 12-mo: 25,000×0.70 = $17,500; 24-mo: ((25,000+40,000)/2)×0.70 = $22,750 → 24-mo wins. Other program differences to watch Lenders commonly offer both 12- and 24-month options, but caps and overlays (LTV/FICO/reserves) can differ by matrix—e.g., some publish max LTVs up to 90% on 12-month programs with stated minimum FICOs. Always check the current sheet. Quick playbook 1.Calculate both 12- and 24-mo averages with the lender’s expense factor. 2.Pick the period that yields the higher qualifying income. 3.Verify the lender’s matrix for any LTV/DTI/reserve differences tied to 12 vs 24 months.
Do DSCR loans work for Airbnb/short-term rentals in Colorado? Short answer: yes—if it’s legal where the property is. Many DSCR lenders finance Airbnb/STRs; they qualify the deal on the property’s cash flow rather than your job or tax returns. How lenders underwrite STR DSCR •Metric: DSCR = Monthly rent ÷ PITIA. Programs often want ≥1.0–1.2; some permit 0.75–0.99 with pricing hits. •Proving income: Lenders may use actual Airbnb/VRBO statements, an appraiser’s rent analysis, or third-party STR data (e.g., AirDNA/Rabbu) depending on the lender. Colorado caveats (critical) •Denver: STR license required and it must be the host’s primary residence—so non-owner-occupied Airbnbs aren’t licensable. •Boulder (city) & Boulder County: STRs require local licenses and generally must be the owner’s principal residence (separate county rules for unincorporated areas). Bottom line: A DSCR loan can work for an Airbnb in CO where the municipality/HOA allows non-owner STRs (many mountain/resort areas do, often with caps), but it won’t solve a local ban like Denver’s primary-residence rule. Quick checklist to green-light a deal 1.Check local law & HOA (license/primary-residence rules). Denver/Boulder rules above are strict as of Oct 16, 2025. 2.Estimate DSCR: use realistic STR gross (or mid-term/long-term rent if nightly isn’t allowed), then divide by PITIA. Aim ≥1.1–1.2 to travel comfortably. 3.Match to a lender that underwrites short-term income (some will accept AirDNA/historical payouts).
P&L-only mortgages: what does the CPA need to provide? Yes—many non-QM lenders offer P&L-only options. Here’s what the CPA (or EA/licensed tax pro) is typically asked to provide. What the CPA must deliver •A dated, signed P&L for 12 or 24 months (often YTD through the most recent month), usually dated within ~90 days of closing. •Prepared by a licensed third party (CPA/EA/licensed tax preparer) on firm letterhead with license/ID (often PTIN) and full contact info. •Business details: legal name, entity type, and borrower’s ownership % (many matrices call this out explicitly). •P&L content: period covered (e.g., “9/1/2024–8/31/2025”), gross revenue, expenses, and net income for that period; note basis (cash or accrual). •Support docs if required: some lenders want 2–3 months of business bank statements to back up the P&L; others waive bank-statement support at lower LTVs (e.g., ≤70%). •Time-in-business verification: many guides ask for ~2 years self-employment, evidenced by a CPA letter or business license. •Who can prepare it: some programs require the same licensed preparer who filed the most recent return. Check the matrix. Notes you’ll see in overlays: minimum FICOs/LTV caps vary by lender; examples show 660–680 FICO and max 80% LTV on P&L-only programs. Always confirm the current sheet. Common pitfalls (avoid these) •P&L not current (older than 90 days). •Prepared by an unlicensed bookkeeper (no CPA/EA supervision or license/ID on letterhead). •Ownership % missing or business name on the P&L doesn’t match bank statements. •Lender requires bank-statement support and it’s not provided (watch for programs that need 3 months).
What credit score and reserves do bank statement loans require? •Typical minimum credit score (Bank Statement loans): 660–680 depending on lender and whether you use 12 vs. 24 months of statements. Many programs want 680 for 12-month; some allow 660 with 24-month. •Typical reserves: 6–12 months of PITIA, often tiered by loan amount / LTV / occupancy (e.g., 6 months ≤$2.0MM, 9 months ≤$2.5MM, 12 months ≤$3.0MM with a major Non-QM investor).
Can self-employed borrowers use asset depletion to qualify? Yes — self-employed borrowers can qualify using “asset depletion/asset utilization” or an “asset-only/asset-qualifier” program. Here’s how those work and who offers them: Two common paths •Asset Depletion / Asset Utilization (adds income for DTI) oLenders convert eligible liquid/market assets into monthly qualifying income (e.g., divide by 60 or 84 months depending on investor). Assets used for depletion generally can’t also count as reserves. •Asset-Only / Asset Qualifier (no income or job on the 1003) oQualify solely on verified assets meeting seasoning and sufficiency tests; no employment, no income, no DTI required on the loan app for these programs. Often primary residence only with defined FICO/LTV and minimum post-closing assets.
Can a W-2 co-borrower help a self-employed buyer qualify? Yes. Many Non-QM investors will let a W-2 co-borrower help a self-employed buyer qualify. It’s common and can be structured a few ways. How it typically works (clean, lender-ready) •Mixed Doc Allowed (often): oSelf-employed borrower qualifies with Bank Statements, 1099s, P&L, or Asset Utilization. oCo-borrower documents with standard W-2/Paystub/VOE. oIncomes can be combined for DTI, subject to each investor’s matrix. Some programs require both borrowers to occupy the property and may cap DTI. •Credit & DTI Rules: oUnderwriting usually uses the lower middle FICO between borrowers for eligibility. oAll debts for both borrowers are counted in the DTI if both are on the note. •Reserves & Assets: oExpect 6–12 months of PITIA in reserves on many Non-QM files (can be higher with larger loans or layered risk). oIf using asset depletion, the portion counted as “income” often cannot also count as reserves. •Non-Occupant Co-Borrowers: oSometimes allowed, but more restrictive—think lower LTV caps and/or extra reserves. Occupying W-2 co-borrowers are the cleanest path. •Investment Properties: oIf the goal is a rental, a DSCR program can sidestep income altogether and make the W-2 co-borrower unnecessary; eligibility then hinges on the property’s cash flow.