In today’s work universe, we are a nation of independent employees, and it’s the “age of the freelancer,” Fortune magazine has declared. The self-employed workforce should total 40% of the whole by 2020, says another study—that’s 60 million people!
Are you a self-employed home buyer needing a mortgage? Loans can be tricky to get when something as straight-forward-seeming as what you earned last year gets bogged down in a pile of pay stubs from various clients.
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Self-Employed Home Buyer Blues
Julie and Michael Kurtz can’t prove it, but they’re pretty sure their independent status delayed their expected home loan approval by a few weeks this summer—which called into question whether they could close on a new condo in Chicago.
Julia is a freelance editor of technical journals, and Michael is an attorney. He also referees high school and college football; she has a shop on the handmade Web portal, Etsy, as well.
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Their story has a happy ending, albeit a stressful one—they ended up getting the keys a few days later than originally planned (which also caused some hiccups for the sellers), due to last-minute requests from the bank.
“It would have been better if we’d worked with a loan company where we could have had a personal relationship with the loan officer or broker,” Julia says.
Self-Employed Home Buyer Challenges
Quicken Loans Vice President Bill Banfield notes the unexpected paperwork requests can trip up the prospective self-employed home buyer.
“The challenge for those who are self-employed can be in verifying the legitimacy and stability of their income,” Banfield says.
And new regulations enacted earlier this year mean that the self-employed face even closer scrutiny, according to the New York Times: “Borrowers who have been self-employed for less than two years will find it difficult if not impossible to obtain financing.”
Self-Employed Home Buyer Sticking Points
These are the details that a self-employed home buyer needs to prepare for when seeking a mortgage.
- Debt-to-income ratios. If your business carries debt and you are the sole proprietor, that could impact how much of a personal loan a bank will extend.
- Earnings. Freelancers especially often have business deductions that come out of their overall pay. Banfield uses the example of someone who earned $100,000 last year but technically took home only $60,000 after all the business deductions.
- History. This is the aforementioned “two year” rule. Lenders now want to see you’ve got a somewhat reliable income history, so they know you can make your payments. One year of solopreneurship isn’t much of a history. If you just started out on your own this year, you may want to wait another one before buying.
Self-Employed Home Buyer Tips
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