The growing gig economy accommodates freelancers, independent contractors and short-term rental hosts, to name a few. This self-employment movement includes many would-be home buyers – sacrificing 9-5 stability shouldn’t equate to sacrificing your dream home. If you’re applying for a mortgage in the gig economy, be sure to:
Check your credit score
A stand-out credit score will quell some of the uneasiness lenders may feel. Request a copy of your credit report from TransUnion, Equifax and Experian. Comb through each report and work to resolve any errors long before it’s time to make an offer. Getting a mortgage despite bad credit is possible, but the credit score improvement process can be time-consuming and complicated.
Save for a sizable down payment
Whether contracting, delivering food or taking on temp work, concentrate on saving. You don’t need 20% down to buy a house, but the more you pay up front, the less you’ll likely pay over time.
Know your debt-to-income ratio (DTI)
Your DTI compares how much you owe each month to how much you earn. Specifically, it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent, student loans, credit cards, or other debt. Higher percentages mean riskier investments for lenders, so paying down debts or supplementing income makes you a safer bet.
Share at least two years of tax returns
Borrowers with 1099s may face more scrutiny than their W-2-wielding counterparts. While a typical borrower may simply need their tax return and a pay stub, your income is more complicated. Providing tax returns from multiple years verifies both income amount and consistency.
Be mindful of deductions
Mortgage professionals also use your tax documents to determine how much of your income may be loan qualification eligible. To be considered during a loan qualification review, income reported on your mortgage application must also be listed in your tax returns. Multiple deductions mean lower taxes, but may reduce your ability to qualify for a loan.
Explore other options
If you don’t qualify for a conventional loan, explore government-backed FHA, VA or USDA loans. All may be viable options for gig-working borrowers with VAried financials.
Applying for a mortgage in the gig economy
The freedom to set your own hours, choose your own clients and work on your terms may not disqualify you from homeownership. With a bit of extra preparation and documentation, you’re on your way to owning that home you’ve been dreaming of.
Published on October 7, 2019
