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Let's face it: there’s already a growing number of freelancers, contract workers, and gig economy workers in the U.S. It’s not surprising, given that many people now want to be their own boss or work from their own homes while sitting comfortably in their sofa.
In a 2017 survey conducted by Upwork and Freelancers Union, 36 percent or 57.3 million Americans are already working as freelancers. According to a 2017 study by ReportLinker entitled Happy in the Home Office, Freelancers Embrace the Gig Economy, 77 percent of the US working population works in full-time or permanent roles, but at least 26 percent of these employees are likely to become a freelancer or an independent contractor.
Although many freelancers or contract workers have the freedom to work whenever and wherever they want, that freedom pays its price when it’s time for them to buy a home. In the mortgage world, lenders can be leery of extending money to people who actually lack full-time employment because they are a bigger risk. Lenders tend to look for those who have a steady flow of income, including a two-year history of employment and the likelihood of that continuing in the next couple of years.
And yet, all hope is not lost even if you’re a freelance worker who aspires to buy a home. Here we share with you some of the best-kept secrets to help you prepare for the home loan application process even if you don’t have a full-time job:
Proper documentation makes a big difference
The number one advice for freelancers and gig economy workers who want to buy a home: organize all of your necessary documentation that will show a solid work history. Prepare all your records, including proof of employment and income, records of your previous work and employers, names and phone numbers of your credible references, credit union statements, tax returns, debt records, proof of assets, and other important documentation.
Unlike with typical borrowers, gathering these documents is crucial since you have to work harder to convince a mortgage lender that you can get a home loan. Lenders need to know that you have a reliable income history to assure them that you can actually make your payments. If needed, submit a letter from your client confirming your contractual work, as well as canceled rent checks and paid utility bills.
Spend time organizing, compiling and proofreading all of these important documents and then present them as truthfully as possible. It is also advisable to write a brief letter summarizing your case—stating your stability, strengths, and willingness to fulfill your mortgage application.
Educate your mortgage lender about what you do for a living
Take the time to educate your mortgage lender about what you do for a living to help establish your case. They need to better understand your job, so explain to them what you do in details. Perhaps you could provide any information about your industry, including news articles or social media reviews. You could also provide a letter from your client(s) detailing your contractual work to help you affirm your case. Likewise, having a work history within the same industry or utilizing the same skill sets can also help.
Don't forget to talk to your possible mortgage professional about your home buying goals. It’s a good way to maintain a favorable connection with your lender to assure him/her that you’re a borrower who is easy to transact with.
Get pre-approved
Whether you're a full-time employee or a freelance worker, getting a mortgage pre-approval remains the first step in your journey towards homeownership. However, it’s more vital for freelancers because they may struggle to fully understand their financial standing in the eyes of lenders. Getting pre-approved will help you know if buying a house is even possible, and how you can better prepare for it. The process will let you know how much money lenders and bank institutions are willing to lend you.
If you don’t want to get your mortgage pre-approval from a commercial bank in fear of early rejection, try to get pre-approved with your credit union. Credit unions are more likely to lend to buyers who don’t fit the typical mold or those who don’t have a traditional profile, says Curt Long, director of research and chief economist for the National Association of Federal Credit Unions in Arlington, Virginia. These financial institutions also appeal to borrowers with less-than-stellar credit or those who don’t have an excellent credit history. They also offer special grants and programs that appeal to first-time home buyers. Once you know how much you can actually afford, you can use that as a guide on searching for listings that are within your price range in your desired location.
Pay off your debt and maintain a good credit score
Because of your status as a gig economy worker, mortgage lenders will definitely need to have more assurance that you are financially responsible; that you are qualified for a loan, and that you are a good risk. Carrying a huge amount of debt or having a credit score lower than 620 won't do you any good when it’s already time for you to apply for a loan.
Take the necessary steps to get your debt-to-income ratio to zero or as low as possible. Check your credit report and do what you can to improve your credit score and keep it in excellent standing. Prove to lenders that you are a responsible borrower who will be able to repay his/her loan.
Show an impressive amount of savings
Aside from proving that you are financially responsible for establishing a steady source of income and a solid credit history, you also need to impress lenders by showing that you have a respectable amount of savings. They would love to see that you are able to save money large enough for a down payment. It will also help reduce the size of your loan.
While it may mean living a frugal lifestyle, or reducing your usual weekly Saturday night outings to only once a month, just think that every dollar you save will help you get closer to your own house keys. If you want to get started with saving, here are simple tips to help you do it.
Hunt only for listings that are within your price range
Use your mortgage pre-approval as a guide to only search through listings that are within your price range. Yes, it may come as a little disappointing that you can't get your dream house (but costs twice of what you can afford!). But remember what’s more important: you’re a bigger risk in the eyes of lenders, and you don’t want to be house-poor either. You need to show your potential lender that you’re only looking at properties that are safely within your established budget.
If you’ve been paying rent month after month, it’s a good starting point to let your lender know that you can really afford a mortgage. Calculate your proposed mortgage, plus an additional amount for home maintenance and other costs, and compare it to your current rent. If you’ve been paying more in rent—and have been consistently doing so over time—it might help you strengthen your application. Present proof of your recent rent stubs and a letter from your landlord confirming that you’ve been paying your rent on time. It will help you get a step closer to your dream home even without a full-time job.
If possible, don't get your mortgage from a commercial bank
Once you find your dream home within your budget, you can start the purchase process, and weigh your options on where you will finally be getting your loan. Instead of getting it from a commercial or national bank, choose to finance your loan through a small, local bank or with your credit union (as mentioned earlier). If your credit union has a physical office where you can do your banking transactions and not just online, then it may be a good choice. Credit unions are known for their lower fees and rates because they pass on their savings to their members.
However, if your credit union is lacking a brick-and-mortar office, it could cause you some issues at closing. The best thing you can do once you’re all set up is to avoid that. If you encounter that problem, financing your loan through a small, local bank is another option. Small banks, like credit unions, might be more willing to work with a borrower who doesn’t fit the traditional profile. They cater more to freelancers and contract workers like you to help you get a mortgage.
The Ultimate Advice: Keep on trying :)
Buying a house without a full-time, permanent job may not be easy. It is very challenging, yes, but it’s definitely possible. It’s doable only with the right amount of planning, preparation, and coordination with the right individuals who can truly help you. As long as you can provide decent and accurate documentation, together with an excellent credit standing and history, there is no reason why you couldn’t secure a loan to fulfill your homeownership dreams.
If at first you failed to secure the home loan for which you applied for, don’t lose hope. In this age and time, you can even find a lending company that specializes in helping borrowers who don’t fit the normal profile. Do your extensive research and soon, even if it may take a few years, you can also move into a place you can call your own “home sweet home."
