You were good at your job. So good that you figured out you could do the same work for yourself, or for a few clients at once, and get paid on a 1099 instead of a W-2. Business is going well. Then you start looking at houses, and everyone tells you the same thing: come back when you have two years of tax returns.
That advice is incomplete. Two years of self-employment is the standard. It is not the rule. Here is what actually counts, and why the work you did before you went out on your own matters more than most people realize.
The short answer
For a conventional loan, Fannie Mae’s Selling Guide says the income of someone with less than two years of self-employment may be considered when two things are true:
- Your most recent signed tax returns show a full year (12 months) of self-employment income from the business you have now, and
- You have a documented history of earning the same or more in the same line of work, or in a role with similar responsibilities, before you went out on your own.
In plain English: the lender is not asking “have you been self-employed for two years?” It is asking “is this income going to keep coming?” A year on your own, on top of years doing the same work for someone else, answers that question pretty well.
A real example
One of my clients had been doing the same job for years as a W-2 employee. Then the pay arrangement changed to 1099. Same work, same skills, different tax form. That left my client with only one year of self-employment income on a tax return, and everyone assumed that meant waiting.
It did not. This was a regular conventional loan, and under Fannie Mae’s guidelines the prior W-2 history doing the same work, plus one full year of self-employment on the tax return, was enough. The loan worked fine without the two-year history, and nobody had to sit out another spring market waiting for a second tax return.
The lesson is not “everyone qualifies with one year.” It is that the conversation should start before you assume you have to wait.
What “same line of work” means
This is the part that decides most of these files. Fannie Mae describes it as the same field, or a position with similar responsibilities. Some examples of how that tends to play out:
- Strong: a software engineer who becomes a 1099 contractor writing software. A CPA who leaves a firm and opens a practice. A nurse who goes from hospital staff to independent contract work.
- Harder: a corporate accountant who opens a food truck. Great idea, possibly. Same line of work, no.
The closer your new business is to what you did before, and the more your income held steady or went up, the better the file looks.
Timing matters: the year has to show up on a filed return
Fannie Mae’s wording is that your most recent signed returns must reflect a full year of self-employment income from the current business. So the calendar matters.
- If you went 1099 in January and have filed that year’s return, you may be in good shape now.
- If you went 1099 in the summer, your first return will show only part of a year. That may mean waiting for the next return, or looking at other options.
One practical tip that costs nothing: if you are close, do not wait until October to file on an extension. An early filing can move your buying timeline up by months.
Already in business five years? You may only need one year of returns
The other side of this coin helps established owners. Fannie Mae allows one year of returns instead of two when the business has existed for five years and you have owned 25 percent or more of it for those five years. In some of those cases the business returns can be skipped entirely, when you are using personal funds to close, the business passes the five-year test, and your self-employment income has gone up over the past two years.
Owners who have been at it a while are often handing over more paperwork than the guidelines actually require.
What the lender still looks at
Qualifying with less than two years does not mean qualifying on less information. Expect the lender to look at:
- Net income, not gross. What counts is what is left after expenses on your return, with some add-backs like depreciation. If your write-offs are aggressive, that number can be smaller than you think. Here is how write-offs shrink your qualifying income.
- The direction of your income. Steady or rising is good. A drop gets questions.
- A year-to-date profit and loss statement, especially if you apply well after the tax year ended.
- Proof the business is real and active, like a business license, a website, or a CPA letter.
For the full picture of how lenders read self-employed income, start with how self-employed mortgages work in Austin.
If the tax return route does not fit
Conventional loans are not the only path. Non-QM lenders write their own guidelines, and several programs are built for exactly this borrower:
- Bank statement loans qualify you on deposits instead of tax returns. Here is how bank statement income is actually calculated, and how it works on higher-priced Austin homes.
- 1099 programs from some lenders qualify you on your 1099s with an expense factor applied.
- Asset-based loans can work if you have significant savings or investments. See asset depletion mortgages.
Each lender sets its own history requirements on these, and they change. That is a reason to compare, not a reason to guess.
Five questions to answer before you assume you have to wait
- When exactly did I go out on my own, and does my most recent filed return show a full year?
- What did I do before, and is it the same line of work or similar responsibilities?
- Did my income hold steady or go up when I made the switch?
- How much did my write-offs reduce my net income?
- Do I own 25 percent or more of the business, or am I a 1099 contractor working for one company?
Still on a W-2 but just switched jobs? That is a different set of rules, and they got friendlier this fall. Read what changed for people who just changed jobs.
Why the lender you pick matters here
Files like this are where lenders disagree. One underwriter reads “same line of work” generously, another reads it narrowly, and some lenders add their own two-year requirement on top of Fannie Mae’s guidelines. A bank has one answer: its own. I work with 40+ lenders, so I can put your file in front of one that reads it the way the guidelines actually allow. That is what a mortgage broker actually does, and I do not charge a lender fee to do it.
If you are earlier in the process, start with how to get pre-approved in Texas. Agents, if you have a self-employed buyer who has been told to wait, send them my way.
Don’t be mad at money. Talk to me before you write the offer.
Went out on your own in the last couple of years? Tell me when you made the switch, what you did before, and how you are paid now. I will tell you which path fits. Ten minutes, free, zero lender fees. Call or text (512) 423-4663.
Russell Stout | Texas Mortgage Consultants, PLLC | NMLS #220896 | Company NMLS #1843758 | Equal Housing Lender. Information about self-employment income comes from Fannie Mae’s Selling Guide as of October 30, 2026 and may change. FHA, VA, jumbo, and non-QM loans follow their own guidelines. Individual lender policies, program eligibility, and terms vary. This is general information, not a loan commitment, and not legal or tax advice.
Frequently Asked Questions
Can I get a mortgage if I have been self-employed less than two years?
Often, yes. Fannie Mae’s Selling Guide says income from a borrower with less than two years of self-employment may be considered if the most recent signed tax returns show a full year of self-employment income from the current business, and the borrower has a documented history of earning the same or more in the same line of work, or a role with similar responsibilities, before going out on their own.
I switched from W-2 to 1099 doing the same job. Does my W-2 history count?
It can. Prior employment in the same field or with similar responsibilities is exactly what Fannie Mae looks for when a borrower has less than two years of self-employment. Steady or rising income after the switch helps. You still generally need a full year of self-employment income on your most recent filed tax return.
How many years of tax returns does a self-employed borrower need?
Two years is the standard. Fannie Mae allows one year of returns when the business has existed for five years and the borrower has owned 25 percent or more of it for those five years. In some cases the business returns can be waived when the borrower uses personal funds to close and self-employment income has increased over the past two years.
Who counts as self-employed for a mortgage?
Fannie Mae considers anyone with a 25 percent or greater ownership interest in a business to be self-employed. Independent contractors paid on a 1099 are generally underwritten as self-employed as well, since their income is reported on their own tax return rather than on a W-2.
What if my tax return does not show a full year yet?
If you went out on your own partway through the year, your first return may show only part of a year of self-employment income. That may mean waiting for the next return, or looking at non-QM options such as bank statement or 1099 programs, which set their own history requirements. Filing early instead of on extension can shorten the wait.
Do non-QM loans require two years of self-employment?
It depends on the lender. Non-QM lenders write their own guidelines for bank statement, 1099, and asset-based loans, and history requirements vary from program to program and change over time. Comparing several lenders is the best way to find one whose requirements fit your situation.
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