For many people (myself included), freelancing offers a unique sense of freedom and flexibility in their work life. But what happens when the freelance career starts to take off and it’s time to put down roots by purchasing a home? Buying a first home as a freelancer is a challenge, especially with fluctuating income and unconventional working hours.
Thanks to the digital age, buying a home as a freelancer is more feasible than ever before. With access to online resources and tools, freelancers can navigate the home-buying process with ease. Here are 6 helpful tips for freelancers looking to purchase their first home.
Look for the Right Lender
As a freelancer, finding the right lender can be quite a challenge. You need someone who understands your unique financial situation and is willing to work with you to find the right loan. Plenty of bank statement lenders have experience working with self-employed individuals and understand the challenges that come with irregular income streams.
When you are open about your income and financial stability, you can work together to find a loan that meets your needs without the hassle of traditional lenders. No matter what, be prepared to provide ample documentation of your income and financial history.
Boost Your Credit Score
A good credit score indicates to lenders that you are a responsible borrower and are likely to repay your debts on time. To increase your credit score, there are several steps you can take. First and foremost, ensure that you pay all of your bills on time and in full. Late payments will reflect negatively on your credit report and lower your score.
Secondly, reduce your debt-to-income ratio by paying off any outstanding debts or credit cards — it will show lenders that you have control over your finances and are not overextended. Finally, avoid opening new credit lines before applying for a mortgage, as this could lower your credit score and seem like a red flag to lenders.
Save for a Substantial Down Payment
Saving for a substantial down payment is a necessity for freelancers aiming to buy their first home. A significant down payment reduces the loan amount and demonstrates financial responsibility to lenders. It can potentially qualify you for better mortgage rates, leading to substantial long-term savings.
If you put down 20% or more, you can avoid private mortgage insurance (PMI) and save even more money in the long run. Not to mention, having a sizable down payment shows that you have skin in the game and are committed to investing in your home.
Explore Mortgage Options
Freelancers may not have the traditional W-2 income that most lenders look for. This doesn’t mean you can’t qualify for a mortgage; it simply means that you may need to explore different options. Some lenders offer alternative mortgages specifically designed for self-employed individuals, such as bank statement loans or stated-income loans. You’ll typically have to provide 2-3 years worth of income documentation for these types of loans to show that although your income varies, it is somewhat stable over time.
It’s important to research and compare different mortgage options to find the best fit for your financial situation. Don’t be afraid to ask questions and seek out guidance from a financial advisor or trusted lender.
Get Pre-approved for a Mortgage
Getting pre-approved for a mortgage before house hunting is key for freelancers: it gives you a clear idea of what you can afford and demonstrates to sellers that you are a serious buyer with secured financing.
In the competitive real estate market, this can be a significant advantage. The pre-approval process involves submitting financial documentation to your lender, who will then assess your ability to repay a loan. You can then use this pre-approval letter to make offers on homes and negotiate with sellers.
Consider a Co-signer
For many Americans, the possibility of homeownership seems like an unattainable dream. Because of the high costs of homes and the strict lending requirements, securing a mortgage is sure to be an uphill battle. Especially for freelancers, who may not fit the traditional mold of a borrower.
In this case, it may be beneficial to consider a co-signer. A co-signer is someone with good credit and stable income who signs onto the loan with you and agrees to take on responsibility for the debt if you are unable to make payments. Even if you don’t end up needing a co-signer, having one can improve your chances of getting approved for a mortgage and potentially secure better rates.
Purchasing your first home as a freelancer is undoubtedly a challenging venture, but it’s entirely achievable with the right preparation and resources. The tips outlined above are a great starting point for anyone looking to take the leap into homeownership. With determination, responsible financial practices, and a trusted support network, freelancers can make their dream of owning a home a reality. Go forth and find your perfect place to call home!