Self-employed borrowers and freelancers searching for the path to home ownership need a mortgage solution that’s right for them. Here’s what you need to know to get there.
The freelance workforce has really skyrocketed. In March 2021, the overall number of self-employed workers rose 4.38%, according to the Bureau of Labor Statistics. That’s the highest rate of self-employed individuals in any given month in nearly three years.
In this newfound “gig” economy, workers take on short-term contractual work for clients, or become temporary contract workers—as opposed to being permanent, full-time employees on payroll for traditional employers.
While freelance and contract workers retain the benefits of flexibility and ownership over their time and efforts, their income may be perceived as less stable by lenders, especially when it comes to getting a mortgage. These workers often face unique and significant obstacles when it comes to the already daunting prospect of purchasing a home. But with proper guidance, freelancers and contract workers—and other unconventional borrowers—can demonstrate they have the financial wherewithal to meet lenders’ financial demands.
At First American Bank, we’ve truly seen it all. Our mortgage specialists have successfully navigated a wide range of unusual employment structures and financial situations: business and personal. We’ve approached seemingly insurmountable mortgage barriers creatively—to the benefit of self-employed borrowers across the nation. With First American Bank, it’s simple: we help you navigate any seeming complexity to offer the loans that are right for you.
For any self-employed person or freelancer that feels underrepresented in the lending space, we’ll educate you on the unique challenges you’ll face on your mortgage journey. That way, you can spend less time proving your case—and more time getting ready for your big move.
Here’s some essential documentation self-employed and contract-based business owners and freelancers should have when looking to qualify for a home loan with First American Bank:
I. Employment history
When starting your home-ownership journey with the experts at First American Bank, it’s important to know that a minimum of two years’ worth of gapless self-employment is required to borrow with us.
Here are a few of the most commonly requested documents you can use to demonstrate consistent self-employment:
- Proof of insurance for you or your business
- Business license (for business owners)
- A statement from a Certified Public Accountant (CPA)
- Client letters and receipts
II. Debt-to-income ratio
Debt-to-income (DTI) ratio is derived by dividing your monthly debt payments by your monthly gross income, and is expressed as a percentage. No matter who you are, First American Bank will look at your income remaining after expenses.
For self-employed people and freelancers, determining DTI can be difficult, requiring gathering and evaluating a number of often confusing documents. The trained financial experts at First American Bank can help to navigate through these complexities, calculating your DTI and helping you understand how it will affect you when it’s time to borrow.
III. Proof of income
Whether you have income from freelance work or you’re a self-employed business owner, First American Bank works to take into consideration your personal financial situation—whether you freelance for a living or have owned a restaurant for decades. We’ll also look at how much you earn from self-employment, and whether your income is increasing over time—key factors lenders care about when considering whether to do business with a borrower candidate.
For self-employed people and freelancers, records you can use as proof of income include:
- Two years’ worth of personal tax returns
- A year-to-date profit and loss statement
- Two years’ worth of business tax returns (Schedules K-1, 1120, and 1120S)
- A yearly balance sheet