When income is freelance or self employed these are the challenges to overcome.
After the financial market downturn in 2008, getting approved for a mortgage loan became even more difficult. Combine that with the fledgling economy, which left many people turning to freelance work, and the challenges involved in qualifying for a home mortgage increase exponentially. However, with a little extra work, home buyers using freelance work as proof of income still can qualify for a new loan.
Borrowers who earn most of their income on 1099s should be prepared for extra preparation, paperwork, and discussion of their financial standing when applying for a mortgage.
- It’s important that independent contractors show that their income is stable and increasing. For some, that may mean declaring all their income on their tax returns, and not, say, carrying anything over to the next year, even if it means paying more taxes.
- Consistency in income is key, so those applying for a mortgage this fall or winter should be prepared to provide proof for year-to-date income.
- To increase the chances of getting a mortgage approval, borrowers should pay off other debts, including balances on credit cards.
- Pinpointing the source of the down payment also is helpful. If the down payment will be a gift from a relative, borrowers are advised to submit an account statement showing the funds are available and awaiting the home purchase. Same goes for borrowing from a 401(k).
- Freelancers also should be prepared for a more in-depth analysis of their ability to repay the debt. Submitting tax returns from the last three years and explaining any significant differences in income is advised.
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