Working for yourself has many
benefits: Flexible hours, more freedom on projects, and no dealing with bosses
or co-workers. However, some things are a little more complicated when you’re freelancing…
and one of those things is buying a house. But don’t worry! With just a little
bit of prep work, you can realize your dream of owning a home.
Why is the Home-Buying Process
Different for Freelancers?
The majority of the home-buying
process is the same for everyone. You’ll complete the same applications, get
your credit score verified, and disclose debt and assets. What’s different is
the process of proving your income.
Mortgage lenders need to verify
how much a borrower is earning and a history of earnings. For traditionally
employed prospective buyers, lenders can contact their employer for these
details. Freelancers need to provide this on their own.
What Do Freelancers Need to
Prove Income?
Typically, lenders want to see
at least two years of income history. These are a few examples of documents you
might need to provide:
- Employment
verification in the
form of letters from clients or a licensed CPA, proof of licenses you
hold, and evidence of insurance for your business.
- Income
verification through
at least two years of tax returns, bank statements, and profit-and-loss
forms.
How Can Freelancers Improve
Their Chance of Being Accepted?
Lenders are going to look
closely at your credit score, credit history, and current debts. They will also
consider savings or assets, which can be used for a down payment and cover
closing costs.
You can improve the chances of
having your mortgage loan accepted by improving your credit score, keeping your
debt-to-income ratio low, keep balances on credit cards low, and start saving
for your down payment.
Tips for Increasing Your Credit
Score
- A
high credit score can prove to lenders that you’re able to repay a loan.
Check your credit score to make sure there aren’t any errors – and
correcting them if there are.
- Make
sure you don’t open any new credit lines, including credit cards, car
loans, or anything else.
- Do
not close any credit card or other accounts right now! Even if you have a
credit card you haven’t used in years, don’t be tempted to close it out.
Doing this can affect your credit utilization ratio, which affects your
credit history.
Owning a Home Isn’t Just a
Dream!
Don’t be discouraged by the
extended process for freelancers to secure a mortgage. As long as you can
gather the documentation you need to verify and document your income, you’ll be
ready to start the process. If you’re a few years out from starting the process,
now’s the time to boost that credit score, get your debt-to-income ratio low,
and start saving. Good luck!
