Want to get a mortgage as a freelancer?Submitted by Navigator Wealth Management on June 25th, 2021
Self-employment is growing in popularity as more and more people see the benefits of working on their own terms. However, it can come with some major drawbacks. For example, many freelancers have trouble securing a mortgage when it comes time to purchase a home.
Fortunately, going into the situation prepared and well-informed can help. Navigator Wealth Management has created this list of resources to help you better understand and address the concerns lenders may have when considering a home loan for freelancers:
Freelance offers less certainty than traditional employment, so it’s important to legitimize your business in the eyes of lenders. In addition to printing business cards, designing a website, and having good professional references, consider the following:
- If you’re relatively new to freelancing, some lenders may be unsure whether or not they can take your business seriously.
- Ideally, you should wait until you’ve had consistent or increasing freelance income for two or more years before applying for a mortgage.
- You can also give yourself an edge by forming an LLC in California, which creates legal separation between your business assets and personal assets, such as your future home.
Low or Inconsistent Income
Banks need to know that you can afford to pay your loan back. Money magazine notes, “Of course, it’s not as if freelancers don’t have money coming in. It’s just that it’s not quite as predictable -- a contractor might have a huge income one month, and a slim one the next. While that might average out to a healthy amount, it still makes lenders nervous.” Understand the following points and try to ease lenders’ minds:
- Freelance work can be inherently inconsistent, but there are measures you can take to create more consistency for yourself.
- For example, freelancers should always have a substantial emergency fund, which can help pad out lighter months.
- You should also work to create a healthy mix of long- and short-term projects in order to build more stability for yourself.
General Home Readiness
When it comes to applying for a mortgage loan, freelancers are very much like the rest of the working world. Lenders look at things like credit score and payment history to get a feel for whom they’re lending to; it’s how they gauge risk. Here’s a look at a few other metrics banks will use to see what kind of loan you qualify for:
- The more you have saved for a down payment, the better.
- Consider your debt-to-income ratio, as too much debt can hold you back from taking out more.
- Finally, here are some tips for bringing up your credit score if it’s not as high as you’d like.
Freelancers can get approved for a mortgage, although you may need to put a little more work into the process than a traditional employee. Above all, you need to find ways to prove to your lender that you can handle the debt, even with the ups and downs of self-employment. We hope these resources help you find the right loan for you!
Looking for personalized financial advice? Contact Navigator Wealth Management today to get started.
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