When you work as an entrepreneur, it’s not always easy to navigate the homebuying process. While your business may be doing well, demonstrating financial stability can be tough through traditional lending application processes. You’ll need to investigate a range of options to find one that allows you to pursue home ownership.
Keep reading to discover 13 pathways to a mortgage that can help freelance homebuyers.
1. Consider a Conventional Loan
If you’re a freelancer making a regular income through your business, paid out every few weeks, you may be competitive for a conventional loan. You’ll need a W-2 and copies of your tax returns from the previous two years to verify your financial stability.
Not all freelancers will have this kind of routine income, and tax write-offs could make your net income look too weak to qualify. But conventional loans are worth applying for if you fit the requirements well. You’ll see lower interest rates and customizable terms.
2. Try DSCR Loans (Debt Service Coverage Ratio) for Rental Property
As another option, DSCR loans are a good option for individuals seeking to invest in rental properties. That’s because the potential for rental income is more significant than the buyer’s employment status or income during the application process. A simple formula can show whether the property will generate enough money to cover the mortgage payment.
You can expect that you’ll need to make a down payment of around 20% or more of the purchase price. And you’ll need a good credit score.
3. Check with Credit Unions
If you have a good connection with your community, it’s worth investigating lending options through local credit unions. You’ll need to be a member there first, and the process to apply for a loan is similar to that of a conventional loan.
You can expect that credit unions will take your unique situation seriously, however, and look carefully at your financial picture. Closing costs and other fees tend to be lower through credit unions, too.
4. Look into a Bank Statement Mortgage
As a freelancer, you might not have a reliable monthly income, even if your overall financial situation is strong. That’s where bank statement loans can enter the picture as a good solution.
Rather than supplying pay stubs and tax returns, you’ll show lenders your personal and business bank statements. You’ll need at least a year’s worth of statements. But you can trust that lenders will look carefully to gain a better sense of your income through deposits.
5. Use Wealth to Secure an Asset-Depletion Loan
If you’ve amassed a significant amount of savings, you may be a good fit for an asset-depletion loan. You can use your money in savings or brokerage accounts in lieu of traditional W-2 forms.
A lender will look at a specific range of months and divide the total assets by the total number of months. This calculation can help show an income amount, which can then help determine whether a loan is feasible.
6. Pursue P&L-Only Loans
For businesses that are doing well, P&L-Only loans may make sense. You’ll need to supply a Profit and Loss statement and business bank statements.
These loans may come with higher rates, but they also usually come without prepayment penalties. You may be able to avoid Personal Mortgage Insurance (PMI).
7. Review Portfolio Lenders
Portfolio lenders keep loans in their own investment portfolio, which means borrowers may be able to access more flexible loan terms. If your business is in an unusual situation or you’re pursuing an atypical property, it may be best to take this less traditional route.
8. Check Out Bridge Loans
If you’re a freelancer with an existing home, a bridge loan can help you buy a new one. You’ll be able to use your current home’s equity toward a down payment, even if you haven’t sold it.
You’ll need to show lenders that you’re working toward a sale, as these are meant to be short-term loans. You’ll also need to repay the loan quickly, usually once your current home sells.
9. Watch for Local Program Opportunities
Sometimes, local housing programs can be a useful financial tool for new buyers. You may have to commit to taking educational classes, and you’ll need to prove your income is stable. But some local programs can supply help with down payments and better interest rates if you qualify.
For young entrepreneurs transitioning straight from university into the freelance world, these programs often require proof of a solid academic background to qualify for specific “recent graduate” grants. While you manage this transition, using a CGPA full form can help you quickly verify your eligibility for these specialized financial incentives. Keeping your academic records organized is a small but vital step in building the professional profile that lenders want to see.
10. Add a Co-Borrower
Do you have a family member who can step in to offer financial support? Adding a co-borrower can help solidify your financial picture and help you gain approval from a lender more easily. Just be aware that your co-borrower will be responsible, as well, for ensuring that all payment terms are met.
11. Examine Non-QM Adjustable-Rate Mortgages (ARMs)
If you’re planning to sell your home in a few years, consider non-QM ARMS. Know that the rates could change, for better or worse, after a fixed period. And know that you’ll need to make a larger down payment.
Even so, these loans are helpful because lenders are willing to look at bank statements and other alternative documentation. They’re ideal if you have large tax write-offs.
12. Find Assistance with Gift Funds
In situations where you have a family member willing to help finance a new home, you’ll need a gift letter. Gifts can cover some or all of a down payment, reducing financial strain. At the same time, you’ll still need to qualify for a loan.
13. Fund a New Purchase with Cash-Out Refinance
If you own existing property and have strong equity, you may qualify for a cash-out refi. In this scenario, you can use your home’s equity to secure a larger loan that pays off your current mortgage.
You’ll be able to cover costs for new purchases, renovations, and other bigger expenses. And you can put the money received from the cash-out refi toward growing your business.
Buying a New Home
As a freelance homebuyer, you have many options to weigh as you pursue financing. You’ll need to consider your current financial picture and find a lending process that matches your needs.
With the right strategy, your application can earn approval, and you’ll be able to get the keys to your new home sooner rather than later.