In the digital age, the notion of work is rapidly evolving. More and more people are moving away from traditional employment to freelance work, which allows for greater flexibility and control over one’s career. The number of individuals freelancing has experienced recent growth with more than 60 million US workers doing some freelancing in 2022. In terms of mortgage applications, this number signals an increase in applications from self-employed borrowers, since freelancers are considered self-employed. While you may have heard that applying for a mortgage as a freelancer is difficult, as this article by PRIMATA Mortgage explores, it’s actually a rather straightforward process.
- Use a Mortgage Broker
As a freelancer, expect the application to go through extra scrutiny, which can include added documentation, stringent comparison to market expectations, and more. A broker like PRIMATA Mortgage can help you streamline the application by:
- Knowing the ins and outs of the Process: An experienced broker will have hundreds of successful applications under their belt, as a result, they will vet your application to meet lender expectations.
- Referring the Best Lenders: The broker can refer your application to lenders with a high chance of approval and the best interest rates for freelancers.
- Get your documents in order:
As a freelancer, you’ll need to provide more paperwork than a traditionally employed individual. The most important of these documents are your tax returns, preferably for the past two years. Lenders will use these to assess your income stability and reliability. Also, prepare financial statements such as profit-and-loss statements, bank statements, and any documents related to your business, such as your business license or contracts with long-term clients.
- Show consistent income:
Lenders favor stability. It’s crucial to show you’ve had a steady or increasing income over the last two years. If your income fluctuates greatly, it might be wise to wait until it stabilizes before applying for a mortgage.
- Boost your FICO credit score:
Your credit score is a significant factor in any loan application. As a freelancer, a strong credit score can help offset the perceived riskiness of your variable income. Pay all bills on time, keep your credit utilization low, and regularly check your credit report for errors. PRIMATA mortgage can help you obtain a mortgage with a FICO credit score from 580.
- Lower your debt-to-income ratio (DTI):
Lenders look at your DTI ratio to assess your ability to manage your monthly payments. Ideally, your DTI should be lower than 43%. If it’s higher, consider paying off some debts before applying for a mortgage.
- Save for a down payment:
Having a larger down payment not only reduces the total amount you have to borrow but also allows you to avoid the additional cost of private mortgage insurance (PMI) (if you put 20% at least 20% down). However, 20% is rather significant, so PRIMATA Mortgage offers programs that allow freelancers to put down as little at 3% or 3.5% down.
- Consider a co-borrower or co-signer:
If you’re finding it challenging to get approved on your own, you may want to consider a co-borrower or co-signer. This person would share the responsibility of the loan and provide extra assurance to the lender.
- Stay in your field:
Lenders like to see that you’ve been in the same field for at least two years. If you’ve recently transitioned to freelancing from a traditional job in the same industry, this continuity can strengthen your application. On the flip side, if you recently transitioned from a traditional job to freelancing, you would need to have at least 12 months working as a freelancer for your application to be considered.
In conclusion, getting a mortgage as a freelancer comes with its unique challenges, but it’s far from impossible. Armed with these strategies, you’re well-equipped to present a strong mortgage application and step closer to your homeownership dreams. Remember, preparation is key, and each freelance situation is unique, so don’t hesitate to speak to one of our Mortgage Brokers to seek advice tailored to your circumstances.