Are you among the many living the dream of being “boss-less”? The truth is many people are self-employed, and freelancing is on the rise.
It’s no wonder because it allows you to be in charge. Employing yourself means you’re in charge of everything, including your income, which tends to ebb and flow when you are the boss.
With this financial reality, you wonder, “How in the world could I qualify for a mortgage?”
Traditional income earners are seen as a more favorable risk, but mortgage lending options are available to the self-employed. The dream of homeownership is possible for the freelancer.
Here some tips to get you started.
Mortgage Lending Is about Location, Location, Location
Determine where you want to live and the type of house you would like to purchase. Understanding this is key to knowing how much of a mortgage your current income will allow.
Do you want a single-family dwelling or a condo? Near the beach? Downtown? Near all the popular hangouts? Or, on the outskirts of town surrounded by miles of open wilderness?
Where you live and the type of residence you choose determines how much you have to borrow to make your purchase possible.
Armed with this information, you can use a mortgage calculator to get an idea of what your monthly payment will be.
Get Your Documents in Order
Mortgage lenders want proof you can pay. It’s that simple. Proof of income for the self-employed is not as simple as it is for those employed in traditional jobs.
A freelancer needs to provide 2 years of verifiable income to be approved for a mortgage. Anything less than that will make qualifying for the loan more difficult.
What they are really looking for is consistency in your income. This can include any source of income from regular gigs, independent contracts, seasonal work; if it’s consistent, you can use it for income verification.
Become Debt Free
Or at least pay down your debt. Debt is crippling; if there is too much of it, lenders get nervous. The less of it you have, the better it will be when qualifying for a mortgage.
How much debt you have indicates the risk level for the lender approving the loan. Your credit score is a significant factor when qualifying for a mortgage.
It is important to understand your credit score because it is often used to determine the mortgage lending rate and the terms of your loan. Learn what you can do to help and hurt your credit score.
Additionally, mortgage lenders consider how much debt you have when compared to how much income you earn. If the monthly debts, including your mortgage, exceed 45% of your income, getting that loan will be challenging.
Paying down debt reduces the debt-to-income ratio making for favorable borrowing terms and, more importantly, better rates.
Season Those Funds
The bank wants to know if you can pay the mortgage should your income change for the worse. A savings account equal to several months of living expenses is going to be required.
Underwriters prefer to see average account balances maintained or grown for at least 3 or 4 months. The longer the funds stay in the account, the more seasoned they are and the better it is for you.
Do you have enough to close the deal? Closing costs are the costs created by purchasing a home, such as a title search and title transfer. These costs are not part of the loan and must be paid for the transaction to close.
Mortgage lenders want to see that you can come to the closing table with the necessary fees. They will check your available liquid funds to be sure.
No Down Payment is a Thing of the Past
There may have been a time when you could qualify for a mortgage with no down payment. Those programs have passed on; you will need a down payment.
The larger the down payment, the lower the mortgage helping your lender offer better programs with more attractive mortgage lending rates.
Expect to stockpile 20% of the sales price for the down payment. There are lending programs that offer loans with a lower down payment, but the lending rates tend to increase.
Find a Professional Who Will Advance Your Game
The mortgage application process is daunting, to say the least. How do you find a mortgage lender? Will just anyone do?
Lenders have loan packages for any real estate transaction, but it’s not the loan you’re buying from a lender; it’s the experience from A to Z that’s the real prize.
When your emotions are running high because you’re closing on your dream home, you want the process to be as smooth as possible. Choosing the right mortgage lender is key.
Their mission should be focused on your overall experience as opposed to closing the transaction.
The last thing you want is frustrating surprises the day before closing. Your mortgage lender should be transparent and direct with all aspects of the process from beginning to end.
If your lender has been welcoming and told you a couple of things you didn’t want to hear, you likely got a good one.
You’re Home at Last
Can you see yourself living in your own house? Maybe you thought being self-employed was a barrier to entry, and now you know it isn’t. You can secure a mortgage for your dream home.
It will be exciting when you get those keys and unlock the door to your new home. Think of the pride you will feel when you host that dinner party for your closest friends or invite your first guest over for a drink.
Begin now to own your home. The sooner you start, the sooner you will be in your own fancy pad. Check out the loan programs we offer to see which mortgage lending options are the right fit for you.