How to Buy a Home When Working in the Gig Economy?
March 5, 2023
The gig economy comprises a lot of professionals ranging from contractors, freelancers, self-employed and other entrepreneurs. Most people working in the gig economy face a lot of skepticism from lenders since their income is considered non-traditional. For most people in the gig economy, acquiring a mortgage seems like an uphill task, especially when W-2 employees are quickly snagging them. Although most financial institutions and lenders tend to consider borrowers with a steady income and a long history, entrepreneurs or gig workers can also access home loans. The only difference is the process you will go through to get approved.
1) Start by Seeking Pre-Approval
Since not everyone has a substantial cash reserve for a one-time payment on a home, gig workers should seek pre-approval for home loans. This is an essential and crucial step before heading out in search of a property on sale because it gives you a range of homes within your budget. Having an idea of the type of home that fits your budget saves you a lot of time that would be wasted visiting multiple homes only to realize they are pricy or beneath your budget. In addition, if you are working with a realtor, getting pre-approval helps them enhance your home buying experience.
2) Consider Net Income
Before being approved for a loan, it is common for lenders to inquire and verify your income. As a gig worker, it is sometimes difficult to have evidence of the constant flow of income. This is because most lenders consider the lack of regular income as a risk factor for the loan payment. Most borrowers in this category are required to provide proof that indicates the amount of money they make. Lenders are likely to consider the amount of money you’ve made in the past two years to give a better picture of what you earn per month.
3) Combine Your Taxes
Gig workers lack the benefit of using W-2s to prove their eligibility for a home loan. However, lenders will consider these sufficient for qualification if you have tax returns or 1099s going back two years. The critical difference between presenting these forms and those offered by full-time employed borrowers is how you previously declared your income. This means that gig workers need to file with the IRS to prove all their hard-earned money. Do not ignore filing your returns despite how small the money paid is; that could be the nudge your application needs.
4) Keep All Relevant Documents
Lenders tend to be stricter on gig workers than full-time employees and will always require more documentation. Some of the documents that lenders need you to have include business and personal tax returns, business licenses, landlord letters of on-time payments, and profit and loss statements. Some of these documents are easily ignored and often misplaced, which reduces your chances of qualification. If you intend to one day fulfill your dream of owning a home, keep all the relevant documents safe for a smoother loan acquisition process.
Contact us for more information on acquiring home loans and get an expert opinion from our expert loan officers
All loans are subject to credit approval. Interest rates are subject to change daily and without notice. Current interest rates shown our indicative of market conditions and individual qualifications and will vary upon your lock-in period, loan type, credit score, purpose and loan to value.