Can You Get Approved For A Mortgage If You Are A Freelance Writer?

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Self-employed people play a major role in the American workforce. According to a report by Freelancers Union and Upwork, 57 million Americans, or 35% of the workforce, are considered freelancers. Self-employment has many advantages: you can be your own boss, set your own schedule, and choose your own projects and clients. A major downside to working in the odd-job economy, however, is that mortgage lenders tend to look more closely at freelancers when applying for mortgages.

To start

The first thing to know is that those who are considered freelancers, business owners, sole proprietors, or independent contractors all have one important financial characteristic in common: they do not have pay stubs or report cards. salary W-2.

Whichever category you find yourself in, “when applying for a mortgage, your lender is most likely to use the term ‘self-employed’,” says Andrina Valdes, COO of Cornerstone Home Loan. Although self-employed mortgage applicants go through the same application process as salaried employees, they may need to go the extra mile. “You will be prequalified for a mortgage, search for housing, provide the necessary documents for your loan application and purchase home insurance,” says Valdes, “but you may need to take a few more steps to provide proof of income. . “

RELATED: 9 reasons why you might not get a mortgage

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Why additional steps may be necessary

Mortgage lenders have good reason to require additional documentation from freelancers. “As self-employed income can fluctuate throughout the year for many people,” explains Valdes, “these documents can help reduce your risk in the eyes of the lender by providing a broader view of your income”.

There is nothing like a pandemic so that lenders are even more concerned about your ability to pay your monthly mortgage. Ironically, however, now that Covid-19 has destroyed many jobs that were once considered recession-resistant, Upwork notes that an additional 2 million people have joined the ranks of the self-employed in the past 12 months, and 75 percent earn as much or more than their traditional jobs.

While there may be more gig workers making more money than there were before the pandemic began, mortgage lenders are concerned about the informal – and often more temporary – nature of the relationships. freelancers work with their clients. Lenders are also concerned that these relationships will be much easier to break. This is why Valdes says freelancers should be prepared to provide additional documents that present a clearer picture of their income: “You may need to provide personal and business tax returns for the past two years,” advises it, as well as “profit and loss bank statements, corporate bank statements (if applicable) and any additional payments or sources of income, including disability or social security.”

RELATED: 5 things your mortgage lender wants you to know

What about your credit score?

Your credit score is always a determining factor when applying for a loan. According to Valdes, however, a credit score isn’t more important to freelancers applying for a mortgage than it is to mortgage applicants with paid employment, and it doesn’t have to be perfect.

Valdes recommends contacting a loan officer to discuss your situation. “If you meet the conditions [for a loan], you will still have access to many loan products, some of which have credit score requirements as low as 620 for those who qualify, ”she said.

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Why you might be refused a mortgage

“Most lenders are looking for documents that have supported self-employment income for at least the past two years,” says Valdes. It is therefore possible that your mortgage application will not be approved if you cannot prove that you have an income. That said, even if you’ve been self-employed for less than two years, you can still be licensed. In such cases, Valdes explains, approval “would depend on whether you have been employed in the same field of work or in a related profession for at least two years.”

Alternative mortgage programs

If you’re a freelance writer or gig worker and can’t get approved for a standard mortgage, don’t give up. “A freelance writer may still be able to secure a mortgage loan through a variety of alternative, low-documentation programs offered by most lenders,” says David Reischer, lawyer and CEO of Legal advice.com. He notes that freelancers can apply for alternative mortgage programs, including “low-doc” (low documentation) and “no-doc” (no documentation) loans. “These types of mortgage loan products are available to people who do not have W-2 income or sufficient income to demonstrate it on their tax returns.”

Eligibility for low doc loans can be determined by the borrower’s stated income and two months of valid bank statements, and as the name suggests, no doc loans may not require any documentation, Reischer says. There are, however, downsides to applying for these alternative loan programs. “These types of no-doc loans are usually only available for low LTV (loan-to-value) transactions,” Reischer explains, and generally mean a higher interest rate mortgage for the borrower. “In addition, the borrower will need to provide a large down payment so that the lender has equity in the property to foreclose in the event the borrower defaults.”

RELATED: 10 things to know before taking out a second mortgage

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The story of a freelancer

Stacy Caprio, Freelance Financial Blogger at Tax nerd, was recently approved for a mortgage. “Because I am earning less this year due to several factors including Covid, I made a larger down payment than usual, so I should qualify for a smaller loan,” says Caprio. “I also chose to do this because I wanted to own more of the property in advance anyway.”

His experience is that “you can get approved if you can submit at least two years of consistent tax returns and your last two months of income match the returns.” According to Caprio, freelancers should have no problems getting mortgage approval as long as their income has been fairly constant for more than two years at or above their debt-to-income ratio.

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