Oct 04 2021

Freelancer? All You Need to Know to Get Approved

Ready to buy a new home or refinance your existing mortgage but not sure how the process works for freelancers?

Ready to buy a new home or refinance your existing mortgage but not sure how the process works for freelancers? Not to worry, there are many home financing options available to self-employed borrowers.

Who Is Considered Self-Employed?

When it comes to applying for a home loan, the distinction is generally drawn between traditional income earners and self-employed income earners. Traditional employees receive a Form W-2 from their employer, and that is used to document their income on a mortgage application.

Self-employed borrowers can include:

  • Freelancers
  • Contractors
  • Business Owners
  • Gig Workers
  • Sole Proprietors
  • Independent Sales Professionals
  • Investors

Because these individuals don’t have a W-2 showing how much they earn each year, they will need to provide alternative income documentation.

Self-Employed Income Documentation

For most conventional and government loan programs some or all the following documents will be needed to show self-employed income:

  • One to Two Years of Personal Tax Returns
  • One to Two Years of Business Tax Returns
  • Business License (if applicable)
  • Business Registration
  • Profit and Loss Statement for the Business
  • A Letter from the Business’s CPA Confirming its Status

Specialty mortgage programs, many designed with self-employed borrowers in mind, provide additional options for documenting income. These Non-QM loan products may use one of the following methods:

  • Bank Statements
    Income is shown as the difference between deposits and withdrawals over a period of time on business or personal bank statements.
  • Form 1099
    For freelancers or subcontractors who receive 1099s showing their income from the businesses they work with.

Have questions about your income documentation options? Give us a call today to discuss your scenario.

Does All Self-Employed Income Qualify?

Because a brand-new business or venture represents greater risk when compared to an established one, many mortgage programs require that self-employed individuals show a two year history in the business to be eligible. This means having two years of tax returns, which generally amounts to more than two years from opening day, depending on when the business return is filed.

Exceptions can sometimes be made if the new business is in the same field that the individual has a long history in as a traditional employee.

What if a Borrower Has Multiple Jobs?

It’s not uncommon in today’s economy to have multiple jobs, perhaps with various compensation structures. For example, a potential home buyer may have a part time job for a large corporation and run their own business on the side. This is no problem for many home loan programs.

The income from the corporate job can be documented with a Form W-2 and the qualifying income from the side business through alternate documentation, with both considered on the loan application. In some cases it could be possible to qualify for a mortgage using only the traditional income. It may not be necessary to document the self-employment income if it is not needed – talk to your loan originator to learn more about this possibility.

Qualifying for a Mortgage as a Freelancer

Though the income documentation is different for self-employed borrowers, the other qualification factors are the same that would be evaluated for a traditional income earner. Some of these may include:

  • Credit History and Score
    An applicant’s credit report shows how they have handled credit accounts in the past, which can be used to show how likely they are to repay a new home loan as agreed. Most mortgage programs require a minimum credit score to be eligible.
  • Equity Position
    Some home loan programs require a down payment of ten or twenty percent of the home’s value (or that the homeowner have eighty or ninety percent equity in the home if refinancing.) Others, notably government products such as FHA Loans and VA Loans, have low or even no money down options.
  • Other Debts
    Existing monthly payments on credit accounts such as car loans, student loans, credit card balances, and other mortgages as applicable will be calculated to determine the amount that can be borrowed with a new mortgage loan.
  • Occupancy Type
    The requirements may vary if the home will be used as a primary residence, vacation or second home, or investment property.
  • Property Type
    Financed properties can be single family houses, townhomes, condos, lots and land, manufactured houses, mobile homes, duplexes, and multi-unit properties. Not all programs will finance all property types.

Contact us to learn what you could qualify to borrower for a new home, or what you might save by refinancing.

Mortgage Rates for Self-Employed Borrowers

As a general rule mortgage rates for freelancers and other self-employed individuals aren’t any different than the rates available to traditional employees. Pricing varies by program and the specific scenario. For example, rates tend to be lower on shorter term ten- and fifteen-year loans, when compared to thirty-year loan terms. When borrowing a larger percentage of a home’s value rates are generally higher than when the homeowner will have more equity in the property.

A few other factors that can impact pricing include the applicant’s credit history and score, occupancy type, property type, if the loan is a fixed rate mortgage or adjustable-rate loan, and current market conditions.

Interested in applying for a new mortgage as a self-employed borrower? Call today for a quote for current mortgage rates.

These days, more and more people are looking to buy their dream homes, especially as remote work and work-from-home setups have become an enduring trend. A 15 point increase in requests for home tours and other home-buying services, along with a 11% rise in Google searches for homes, indicate an uptick in demand to buy houses in the country. However, there is a definite worry about affordability when it comes to housing, especially as hefty price tags on available residences have kept the market just as competitive as before, if not more.

According to the latest reports from analysts, it’s not all bad for existing homebuyers and aspiring house hunters. As previous data shows, timing matters in the housing market, and working on different approaches to home buying – like through a reliable lender – can help advance you towards more affordable housing goals. Below, we discuss whether house hunters should buy now or wait, and why.


What is your financial situation?

Counter to the rise in home demand, there is a considerable lack of supply. Along with rising prices and interest rates, the housing market may seem like a highly competitive space with wealthy homeowners fighting for what little property is left. It can be overwhelming, but knowing where you stand financially can help you better strategize your home buying journey. Following the four key components of affordability, ask yourself:

  • How much do you have saved for a down payment?

  • How much does your household earn?

  • What debts do you carry?

  • What is your credit score?


Familiarizing yourself with these components will help inform your decision on whether or not to wait. For example, taking the time to improve your credit scores before committing can save you from higher interest rates in terms of your monthly mortgage payments. Alternatively, many young homebuyers are compromising by living with family for a significant amount time to save up for a down payment. Getting this out of the way when you’re able to can help you get better loans to buy sooner than later in case interest rates end up increasing.

What kind of home is best for you?

Buying a home is a huge purchase and a big commitment. With shifts to digital and remote ways of working taking place in recent years, this has provided homebuyers with opportunities to be more flexible when buying homes. Homes in areas away from busy cities and urban hubs, for example, are considerably cheaper. This makes them a perfect option for buyers who work from home, or aren’t required to be present in the office on a consistent basis.

The lifestyle you expect to live is as much a factor to consider as money. Condos and townhouses offer lower maintenance costs in the long run, and are perfect for smaller households when compared to single-family homes. If the household grows, homebuyers looking for a side income can even invest in renting out purchased properties to passively earn back what they spent and look into bigger properties for family use.

What does the future look like?

In a previous post, we talked about the rising mortgage and interest rates. While the market may seem bleak or intimidating in its current condition, housing experts also believe factors such as supply have a high chance of returning to pre-pandemic levels by the end of 2024. If you are financially able, buying now while others may be intimidated by the prices can give you an edge. Conversely, taking some time to get your finances in order can benefit you when it comes to securing better loans and lower interest rates.

Working with experts can help you make better decisions for the loans you need, making sure you don’t get trapped with high interest rates or hidden charges. The future of fintech suggests that big data is the future of loans, as more online lenders are now using algorithms, which predict potential defaults better than FICO scores do. Data is also leveraged precisely to identify customers who fit various products well — which can give you peace of mind, as an aspiring borrower. Here at City Lending for example, we find the right programs to fit your needs and profile, making sure you get some of the lowest down payments and interest rates along with a premium service.

And if you’re still unsure, it’s worth considering that waiting it out in the market’s current wild conditions could result in even higher interest rates in the future. At the end of the day, buying a house is ultimately a huge investment, which comes with benefits such as privacy and a financial investment that for the most part will weather most economic storms.

Find out if this is the right time for you to get a house by contacting one of our loan officers today.


Content intended only for the use of citylendinginc.com

Written by Alicia Christopher

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