In a challenging job market, freelancers who file their income on 1099s are finding they can get a leg up on the competition when it comes to home-ownership. While attaining a home mortgage proved to be a significant challenge to many freelancers during the credit crunch, in more recent months the uptick in unions for freelancers has legitimized freelance work and made loans and mortgages more accessible for these kinds of workers.
Securing a mortgage
Qualifying for a mortgage as a freelancer will require you to explain your financial situation and file extra paperwork. The numbers bode well for the swelling ranks of freelancers, however.
There are about 2.5 million freelancers in New York, including freelance artists and independent contractors. As long as you can show that your income is relatively constant and on an upward progression, many banks will give independent contractors and freelancers serious consideration.
And if you can obtain a mortgage as a freelance worker, then youâ€™re home free, so to speak, on the road to home ownership. Freelancers can investigate regions that offer many real estate options, such as Miamiâ€™s constellation of luxury home communities.
If youâ€™ve earned steady income from the same client or set of clients over many years, you should emphasize that fact to the bank where youâ€™re applying for a mortgage. The more stable and promising your source(s) of income over time, the better your chances of having your mortgage application approved.
Thereâ€™s still a bit of skepticism toward freelancers who sidestep the for-hire system.
Paying off debts
To become a homeowner, you should pay off any obligations and debts as soon as possible. Freelancers, or a freelance couple, should pool any extra money into a cash reserve. According to BizFilings, amassing a reserve will also offset any difficulty you might have finding freelance work in slow economic times.
Honestly, thereâ€™s no evil plot against freelancers who want to attain homeownership. Banks and mortgage issuers simply want assurance that youâ€™re prepared to make the payments.
A cash reserve, absence of debt, consistent tax returns, and proof that your income is stable and possibly increasing are good metrics that send all the right signals.
Retain contracts and invoices
What can provide even more assurance than a bank statement or a tax return? Freelancers should have pay contracts and invoices from clients prepared and ready to show to lenders.
Work from the previous year and invoices for work thatâ€™s still incomplete will also help your chances of obtaining a mortgage and making the transition to home ownership.
According to the Money section of U.S. News and World Report, many mortgage issuers view start-up expenses as ongoing, which can hurt a freelancerâ€™s chances of securing a mortgage.
Although getting confirmation from a bank or the IRS that these pay contracts and invoices are authentic would be the go-to option, for a freelancer thatâ€™s not necessarily an option. Organized notation of all your invoices over the previous year and professional contracts might be the deciding factor that assures a bank youâ€™re ready for a mortgage.