Credit Score Requirements For 1099 Loans
Credit Score Requirements for 1099 Loans
1099 income loans are designed for self-employed workers and independent contractors whose income is paid via IRS Form 1099. Because these loans use alternative documentation, we rely heavily on the borrower’s credit score (FICO) and their equity contribution (LTV ratio) to ensure the borrower has the capacity and willingness to repay the debt.
Minimum FICO Score Thresholds
The minimum acceptable credit score for a 1099 loan varies significantly based on the lender, the specific Non-QM program used, the desired loan amount, and the maximum Loan-to-Value (LTV) ratio requested.
A. Explicit 1099 Program Minimums
Some lenders offering dedicated 1099 loan products set the minimum FICO score relatively high to compensate for the flexibility in income documentation:
- North American Savings Bank (NASB): The 1099 loan program requires a 700 minimum credit score. The stronger the credit score, the better the borrower’s chances of qualifying and receiving favorable loan terms.
- Shining star Funding offers Non-QM Expanded (Alt Doc): The minimum credit score for the primary borrower is 660.
- Elite Jumbo: The minimum required score is 720 for all borrowers.
B. General Non-QM/Alt Doc Minimums
Since 1099 loans often fall under general Alternative Documentation (Alt Doc) guidelines, the minimum floor scores for the loan series apply:
- Advantage Standard/Expanded: The minimum FICO score required for loans up to $1,000,000 is 620.
- Edge Standard: The minimum middle FICO score required for any borrower in this series is 620.
- Edge Elite: The minimum middle FICO score required is 660.
- Sharp Series: The minimum FICO score for the Sharp Expanded, Sharp Premium, and Sharp Standard programs—all of which include 1099 documentation—is 660.
FICO Score Impact on Maximum Loan-to-Value (LTV)
In Non-QM lending, the credit score is the primary determinant of the level of risk the lender is willing to absorb, which is managed by adjusting the maximum allowable LTV (or the minimum required down payment).
| FICO Score Range | Max LTV (Min Down Payment) Example | Program Context |
| 700 | Up to 85% LTV (15% down) | Advantage, Primary Residence ?$1.5MM. |
| 680 | Up to 85% LTV (15% down) | Edge Elite, Purchase/Rate & Term. |
| 660 | Up to 80% LTV (20% down) | Advantage/Edge Standard, Purchase/Rate & Term. |
| 620 | Up to 75% LTV (25% down) | Advantage, Primary Residence ?$1.0MM. |
| < 660 | 80% LTV (20% down) required | General Non-QM requirement for scores under 660. |
We generally charge higher interest rates for Non-QM loans to offset the risk of default. Those with lower credit scores will typically incur Loan Level Pricing Adjustments (LLPA) and pay higher mortgage rates.
Credit Score Calculation and Loan Feature Overlays
A. Calculating the Representative Score
For Non-QM loans utilizing 1099 income, the borrower’s representative credit score determines eligibility.
- The Representative Credit Score for non-DSCR programs is the middle score when three credit reporting agencies are provided or the lower score when only two agency scores are provided. An average score is generally not permitted.
- The score used for qualification is typically the Representative Credit Score of the Primary Wage Earner.
B. Impact of Loan Features and Risk
Specific loan features often impose higher minimum credit score requirements than the standard program minimums:
- High Debt-to-Income (DTI): While the maximum DTI for our Advantage/Horizon Standard/Expanded programs is typically 50%, attaining a DTI up to 55% in the Sharp Expanded program requires a FICO score of 700 or greater.
- Interest-Only (I/O) Payments: Using the interest-only feature usually requires a stronger credit profile. For example, our Connect program requires a 700 minimum FICO to qualify for an Interest-Only loan.
- Loan Type: The Asset Qualifier program requires a minimum FICO of 700 for Primary Residence purchase and rate/term refinance transactions.
C. Credit History and Tradelines
Beyond the score itself, the borrower’s credit file must meet minimum activity requirements:
- Under our Prime Non-QM Series, each borrower must have a minimum of three (3) tradelines from traditional credit sources that reported for 24 months or more, with at least one (1) open and active for the last 12 months.
- For the Non-QM Connect program, each borrower must have three tradelines and a credit history covering 24 months.
If a borrower has an open derogatory dispute on their credit report, the report is considered invalid, and the dispute must be resolved and an updated credit report received before the loan can close.
FAQ's
Many programs, such as our Connect and our Sharp Premium, require a minimum 700 FICO score to qualify for the Interest-Only feature. Our Advantage program requires a minimum FICO of 680 for Interest Only.
A FICO of 660 limits the maximum LTV for a purchase loan of ≤$1,000,000 to 80%.
To achieve a high Debt-to-Income (DTI) ratio, up to 55%, in the Sharp Expanded program, a FICO score of 700 or greater is required, and the maximum LTV is capped at 80%.
Each borrower must have a minimum of three (3) trade lines from traditional credit sources that reported for 24 months or more, with at least one (1) trade line being open and active for the last 12 months.
The minimum FICO score required for an Alternative Documentation (Alt Doc) loan in this scenario is 620.
The representative score is determined by selecting the middle score when three credit reporting agencies are provided or the lower score when only two agency scores are provided. For our Connect 1099 Only program, the middle score of the primary income earner is used.
The minimum FICO required for our Sharp Expanded, Sharp Premium, and Sharp Standard programs is 660.
The credit report is not considered valid if there is an open derogatory dispute, and all derogatory disputes must be resolved and an updated credit report received before the loan can close.
Lenders charge higher interest rates and require stronger profiles because 1099 loans are classified as Non-QM and cater to borrowers with non-traditional income. This increased FICO threshold helps compensate for the greater risk.
Our dedicated loan programs, such as the 1099 Mortgage Loan program require minimum credit scores. A stronger credit score increases the chances of qualifying and receiving favorable loan terms.
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