How to Get Approved for a Mortgage as a Freelancer
Working for yourself has many benefits: Flexible hours, more freedom on projects, and no dealing with bosses or co-workers. However, some things are a little more complicated when you’re freelancing… and one of those things is buying a house. But don’t worry! With just a little bit of prep work, you can realize your dream of owning a home.
Why is the Home-Buying Process Different for Freelancers?
The majority of the home-buying process is the same for everyone. You’ll complete the same applications, get your credit score verified, and disclose debt and assets. What’s different is the process of proving your income. Mortgage lenders need to verify how much a borrower is earning and a history of earnings. For traditionally employed prospective buyers, lenders can contact their employer for these details. Freelancers need to provide this on their own.
What Do Freelancers Need to Prove Income?
Typically, lenders want to see at least two years of income history. These are a few examples of documents you might need to provide:
- Employment verification in the form of letters from clients or a licensed CPA, proof of licenses you hold, and evidence of insurance for your business.
- Income verification through at least two years of tax returns, bank statements, and profit-and-loss forms.
How Can Freelancers Improve Their Chance of Being Accepted?
Lenders are going to look closely at your credit score, credit history, and current debts. They will also consider savings or assets, which can be used for a down payment and cover closing costs. You can improve the chances of having your mortgage loan accepted by improving your credit score, keeping your debt-to-income ratio low, keep balances on credit cards low, and start saving for your down payment.
Tips for Increasing Your Credit Score
- A high credit score can prove to lenders that you’re able to repay a loan. Check your credit score to make sure there aren’t any errors – and correcting them if there are.
- Make sure you don’t open any new credit lines, including credit cards, car loans, or anything else.
- Do not close any credit card or other accounts right now! Even if you have a credit card you haven’t used in years, don’t be tempted to close it out. Doing this can affect your credit utilization ratio, which affects your credit history.
Owning a Home Isn’t Just a Dream!
Don’t be discouraged by the extended process for freelancers to secure a mortgage. As long as you can gather the documentation you need to verify and document your income, you’ll be ready to start the process. If you’re a few years out from starting the process, now’s the time to boost that credit score, get your debt-to-income ratio low, and start saving. Good luck!