How hard is it to get a mortgage as a self-employed worker? Freelancers make up a good amount of the American workforce. According to a report produced by the Freelancer’s Union and Upwork, about 57 million people across the country are considered freelance workers, this is about 35% of the total workforce.
There are many perks to working as a freelancer including setting your own work schedule, picking the work that you want to do, and being your own boss. But, there is a disadvantage when it comes to applying for a mortgage in hopes of purchasing a home, lenders tend to be more hesitant to approve a loan.
Extra Steps are Most Often Required
If you are a freelance worker you will be considered “self-employed” when it comes to applying for a home loan. Mortgage applicants who are considered self-employed do go through the same application process that those who are employed by a company do, but there is most often some extra steps required.
There is the prequalification, the actual loan origination application, etc… but when you are self-employed there are extra steps to provide solid proof of income.
Why These Extra Steps are Needed
Mortgage lenders have good reasons behind requiring extra documentation from freelance workers. Self-employed income tends to fluctuate unlike receiving a base salary or guaranteed hourly pay. The extra documentation provides proof of income and helps to decrease risk in the eyes of the lender. Since the pandemic began it caused lenders to be even more cautious and concerned about an applicant’s ability to make monthly mortgage payments on time. Since the beginning of the Pandemic Upwork has reported that 2 million more Americans have joined the freelance workforce as companies began to close their doors.
Due to the nature of freelance work being more temporary in nature lenders are often requiring freelance workers to provide personal and business tax returns for the last two years as well as profit and loss statements and any additional sources of income such as disability.
If you have been a freelancer for less than two years, you may still be able to qualify for a mortgage if your freelance work is in the same line of work as your previous job or a related line of work for at least two years.
Alternative Mortgage Programs
If you are a freelance worker and have had trouble qualifying for a standard mortgage there are other options that could be approved. There are alternative low-document programs that are offered by a large number of lenders. These types of loans usually use the borrower’s stated income and two months of valid bank statements. The drawback to these types of loans is that they tend to have higher interest rates and require larger down payments.
If you are a freelancer or self-employed worker interested in your loan options in Snohomish County please contact me any time.
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