Today, many workers are employed in the “gig economy” such as Uber drivers or TaskRabbit workers. Additionally, there are a rising number of employees who work short-term contracts, jumping around from job to job, or freelance work, rather than having a steady, contracted job.
This means that even if those who make good money could find it more difficult to get a mortgage for a new home. Right now, lenders typically look at credit score, history of employment, and the likelihood of continued employment. In today’s changing economy, it’s getting less possible to check every necessary box.
Here are some tips to help make sure you have a better chance of getting that loan for your dream home, even if you don’t have a full-time, regular job.
Paperwork, paperwork, paperwork
You’ll need to make sure you have paperwork with each of your clients, even if it was just for a short amount of time. This includes proof of employment and income, phone numbers and email addresses of references, any previous employers, landlords and more.
It’s also helpful to know what your credit score is. I recommend CreditKarma for this because it’s free, although you could use any reputable site.
If you have all of your records, information, and documents of previous or ongoing clients, your lender will have more confidence in your ability to pay because they can see exactly how much money you have and where it’s coming from.
Explain your industry
Your lender might be a little behind on the times and need to better understand exactly what you do so they can feel comfortable knowing this work will still exist in the future. For example, if you are a freelance writer for magazines, the lender probably understands what this is as this job has been around for a while.
However, if you perform chores for people around your area on one of the numerous task apps, you might need to show the lender exactly what it is and how it works. Essentially, even though you don’t have a typical job with a contract, you can show that it’s likely that these jobs will continue at a steady rate for years to come.
Show that you have been performing your job regularly, even if it was with many different short-term clients, and the lender will better understand.
Careful with your deductions
Most self-employed people write off the expenses tied to their job when they report their income tax. You have to keep in mind, though, that these deductions, including things like your Internet service, travel bills, dinner bills and more, show your lower net income.
This net income then is used to help decide if you qualify for a mortgage. So, it might balance out in your favor to take off a little bit fewer deductions that you legally can in order to get the mortgage you’re after.
Talk to someone who knows
You can first talk to a mortgage lender, tell him about how much you’re planning to spend on a house, and see if that is possible given your line of work and income. They will then be able to tell if this is feasible and if not how much more you’ll need to make.
You’ll also learn what you are able to qualify now to potentially look for homes in that price range. Before you start looking at homes, it’s the best advice for everyone, but particularly self-employed individuals, to get pre-qualified for a certain amount by a trusted lender.
After this, you can either take on more clients to make more in the given year or find a home in your current budget.
If you need help finding a good lender, contact Priority Real Estate for local advice. We work with many great lenders in the area and will give you at least three people who you can call.
Have as little debt as possible
This one is important for everyone looking to buy a home but especially important for those who don’t have a regular job. The lender is going to be looking at each piece of your puzzle a little differently than they’d look at someone with a steady paycheck because there’s less security that you will pay your loan back.
Because you’re riskier, you want to prove that you handle your money well. That means that you want to make sure all debt you have is as close to zero as possible and your credit score is in great standing.
Unfortunately, you can’t get past the fact that you are held to a higher standard than other buyers. But, your risk greatly lowers as your debt does.
Ask about a ‘Bank Statement’ Mortgage
Some lenders are allowing the self-employed or gig economy workers to use a “bank statement” mortgage program. This works by reviewing 12 to 24 months’ worth of deposits to your bank account, as well as a profit and loss statement for your business.
Using this instead, you may not have to show two years of tax returns, W-2s, and payroll checks. This is geared specifically for those employees working in the new gig economy that don’t fit into the typical boxes created by mortgage lenders.
Overall, if you don’t have a typical full-time job, the sad fact is that you will have a more difficult time getting a mortgage. However, following these tips can still help you get the house you’re after.
The top recommendation, after you pay down your debt and make sure your credit score is as high as you can get it, is to go talk to a good lender. They can help you understand all the ins-and-outs of this potentially difficult process.
After you know what price range you’ve been approved for, give me at Priority Real Estate a call and we’ll help you find the perfect home.
Michele Karl is the Owner/Broker of Priority Real Estate. She can be reached at her email at [email protected] or give her a call at her office at 865-577-6600.