Introduction
In recent years, the number of self-employed individuals and gig workers has been on the rise. According to a study by Intuit, it is estimated that by 2021, around 43% of the US workforce will be self-employed or freelancers. While there are many perks to being self-employed, such as flexible schedules and the freedom to choose your own clients, there can often be some challenges when it comes to securing a mortgage.
For self-employed individuals and gig workers, getting a mortgage approval can be a daunting process. Lenders tend to view those with non-traditional income sources as high-risk borrowers. However, with the right preparation and approach, it is possible for self-employed individuals and gig workers to successfully obtain a mortgage. In this article, we will discuss some tips that can help you secure a mortgage as a self-employed or gig worker.
1. Keep Accurate and Detailed Records of Your Finances
One of the most crucial aspects of securing a mortgage as a self-employed or gig worker is having accurate and detailed records of your finances. Unlike traditional employees who receive a steady paycheck, the income of self-employed individuals and gig workers can vary from month to month. This can make it challenging to convince lenders of your financial stability.
Therefore, it is essential to keep accurate and detailed records of your income, expenses, and tax returns. This means having well-organized financial statements, bank statements, and tax returns for at least the past two years. This will demonstrate your earning potential and financial stability to lenders.
2. Maintain a Healthy Credit Score
A good credit score is an essential factor in securing a mortgage for any borrower, and this holds true for self-employed and gig workers as well. Lenders are more likely to approve a mortgage for someone with a strong credit history, as it is a sign of financial responsibility.
Make sure to pay your bills on time, keep your credit card balances low, and avoid applying for new credit before applying for a mortgage. You can also check your credit score for errors and address them before approaching lenders.
3. Show Proof of a Steady Income
Lenders prefer to see steady income flow, and as a self-employed or gig worker, this can be tricky to prove. However, there are ways to demonstrate your income stability to lenders. For instance, you can provide contracts and invoices from your clients showing regular work or income.
Another way to prove a consistent income is by showing that you have been in the same line of work for at least two years. Lenders generally prefer borrowers who have been in the same line of work for some time, as it shows a level of commitment and stability.
4. Minimize Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is another critical factor that lenders consider when approving a mortgage. Your DTI ratio is the percentage of your monthly gross income that goes towards paying off debts. Lenders prefer borrowers with a DTI ratio below 43%, and this includes your potential mortgage payments.
As a self-employed or gig worker, you can lower your DTI ratio by paying off any outstanding debts or avoiding taking on new ones. This will make you a more appealing candidate to lenders and increase your chances of getting approved for a mortgage.
5. Consider Alternative Financing Options
If you are having trouble securing a traditional mortgage, there are other alternatives that you can explore. For instance, some lenders offer mortgages specifically designed for self-employed individuals and gig workers. These loans may have slightly higher interest rates, but they often have more flexible criteria and may be easier to qualify for.
Another alternative is to consider a co-signer or a joint mortgage with a spouse or partner who has a stable income. This will increase your chances of getting approved as the lender will consider both incomes when evaluating your application.
6. Be Prepared for a Longer Process
Unlike traditional employees who can provide a single W-2 form to prove their income, self-employed and gig workers may need to provide multiple documents and evidence of their income. This means the mortgage approval process may take longer than usual.
Be prepared to provide additional documents and have patience during the process. It can be helpful to work with a mortgage broker who has experience working with self-employed and gig workers, as they can guide you through the process and help you gather the necessary documents.
Conclusion
In conclusion, securing a mortgage as a self-employed or gig worker may have its challenges, but it is not impossible. By keeping accurate records, maintaining a good credit score, and demonstrating consistent income, you can increase your chances of getting approved for a mortgage. Additionally, considering alternative financing options and being prepared for a longer process can also make the mortgage approval journey smoother. With these tips in mind, self-employed individuals and gig workers should be able to turn their dreams of homeownership into a reality.
