Buying a home as a contract or freelance gig worker can be challenging. There are more and more people these days who rely on freelance work combined with part-time jobs to make ends meet. These types of incomes are not something that most lenders have historically had to consider when it comes to giving people large sums of money to buy a home.
However, the historical norms are starting to change. With that said, it is still going to be an uphill battle with a lender to get approved for financing. You will need to jump through many more hoops than your stable job holding counterparts to secure a mortgage. You will need to make a compelling case to the bank to convince them you are financially stable enough to take on the debt.
Here are some great tips and advice on what you can do to get ahead of the game if you are gig worker and you want to buy a home.
Perhaps the best piece of advice we can offer those with gig jobs who are looking to buy a home is to get organized. Gather up all the documentation concerning your employment contracts and income. Be sure to include the names and phone number of any references, along with current and previous employers, landlords, or any other individual or entity that can attest to and verify your finances. Also, you will want to get a copy of your credit scores to keep on hand as the more documentation you can provide the easier it will be to convince a loan officer to approve your mortgage.
Be prepared to explain your income
Your loan office at the bank likely won’t understand what it is you do exactly. Get together at the very least the last two years of the work you’ve done. Also, collect some information you can provide to the bank that describes your industry and the type of work you perform. These loan officers are simply looking for stable income history, and if you can provide that information, you will greatly increase your chances of getting that loan.
Making excessive deductions diminishes your reportable income. When applying for a loan to buy a home the bank will look at your DTI (Debt to Income Ratio) to determine if you have sufficient income to afford a mortgage. By deducting too much money, your income numbers suffer, and it reduces your chances of being approved.
Here that you should use common sense when it comes to reducing deductions. Be fair about your tax reporting without giving yourself too much of a tax burden. It’s a great idea to hire an accountant to help you figure out the best method to handle your taxes with the goal of buying a home.
Reduce your debt
Since it is harder to qualify for a loan a gig worker, you will need to reduce the amount of debt you owe to build up that debt to income ratio we talked about in the last section. Take every step necessary to get your debts down as low as you can. Reduce your debt will allow for more wiggle room in your income and deductions on the other side.
Consider a rent-to-own
Rent to own homes can be a great alternative to traditional methods of buying a home. These allow you to rent your home for a few years before you purchase it. A rent-to-own home will allow you to spend a few years getting down your debts and working on documentation needed to convince a bank to give you a loan.