The gig economy has exploded over the past decade. Today, around 36% of the US workforce is freelancing and many more or self-employed small business owners.
While being your own boss does afford you great freedom to set your hours and often work where you want, you may face extra scrutiny when trying to get financing to buy a home.
Because your income comes from many sources and you may do your own bookkeeping, it's more challenging to prove your income. But fear not. Freelancers can get financing. You just need to be prepared.
Note that every lending institution may be a little different. But here's your quick guide for home financing for freelancers and other self-employed professionals.
1. You may need to work at freelance a little longer
If you just left a nine to five and started freelancing six months ago, you do not yet have the track record of consistent income that a loan officer will be able to see. The loan officer needs to know that you have the money coming in to pay this loan.
In most cases, loan officers like to see applicants who've been successfully freelancing for at least two years.
2. Clean up your bookkeeping
Are you the kind of person who pulls out a box of receipts on April 14th and then scrambles for the next 18 hours trying to account for last year? You may struggle with a loan officer. They need to see well-organized records of incoming and outgoing, just like any business.
You don't have to take an accounting course. But anyone should be able to follow behind your numbers on a spreadsheet to see exactly how you reached the figures that went on your tax return.
3. Get a CPA signature
You may need to get the signature of a Certified Public Accountant (CPA) on your books for at least the last six months. But please don't do this before they ask for it because it will cost money. The more disorganized your financial records, the more it may cost.
If you'd be embarrassed to show your bookkeeping to a CPA, please see the tip immediately above. You can do this.
4. Make your case
If your income fluctuates wildly or has dropped in the most recent year, that may be a red flag for a loan officer. Even if they don't ask about it, make sure they know why that dip occurred.
Perhaps you were taking care of an aging parent or a sick child. Some of your income may have been delayed for some reason. Be prepare to explain the ebb and flow of your income.
Don't appear to be a victim of circumstance. But do communicate irregularities that don't reflect the success you're experiencing as a freelancer.
5. Have a strong savings
Freelancers' income varies from month to month, but your mortgage payment does not. Show that you're stable and have a backup plan. These savings should be in addition to a down payment.
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