First Time Buyer Guide: How To Get a Mortgage if You're a Freelancer

This is the latest installment in our First Time Buyer Guide, a regular Monday morning feature designed for people who are just entering the real estate market. Not your first time at the rodeo? You'll find some good tips in here for buyers at any stage! This week, we're talking about how to get a mortgage when you have a variable income because you're a freelancer, bartender, or have a similar profession. 

As a freelancer, you’re probably used to hearing how lucky you are. And it’s true. You can usually set your own hours, you’ve built up a great client list over the years, and you love what you do. After all, you invented this job yourself, and you can reinvent it to suit your needs. But there are downsides. You never really get a vacation (because your boss is one tough cookie), your income isn’t always as steady as you’d like, and those lulls between big clients mean you have to be careful with your finances, and you probably need a larger reserve fund in savings than your salaried peers. You also might have a tougher time getting a mortgage.

For your mortgage lender or broker, you may look like a risky prospect. After all, they only have your word and financial records to go on to make their decision. If for some reason you can’t work, your employer can’t help. (Because it’s you.) Your income isn’t consistent. All that money you have in savings? They know you could spend it on anything you wanted right after they gave you a mortgage. So what can you do to convince them?

  • Show a steady increase in income, or at least a consistent minimum, over several years.

  • Be mindful of your net income in the years before you apply for a mortgage. If you spent major bucks on something that qualified as a business expense, but was a one-time thing, it may help you on taxes, but could also reduce your net income for the year, making you a less attractive borrower to the bank.

  • Look into depreciation on items you’ve bought and used for business. In some cases, the value of that depreciation can be added to your net income for the year.

  • If you have a long-term contract with a big client, see if they’ll consider making you a W-2 employee (but not if you think it would jeopardize your relationship).

  • Keep your credit score high and your record squeaky clean. Pay your bills on time, and stick with the same credit accounts to build a history. This shows mortgage lenders you're good at paying bills and managing credit. If you're just getting started, make sure you get the right credit card.

  • Pay yourself. Open an account, and deposit all of your freelance checks into it. Have a fixed amount automatically withdrawn from that every month, and deposited into your checking account. You'll be proving your ability to pay yourself a salary.

  • Plan on bringing a bigger down payment to the table. Check out this list of great ways to save.

  • Shop around. Ask people in the real estate industry, or other freelancers, and find out which brokers have been able to get them loans. Some have an easier time working with less traditional borrowers than others.

Freelancers have to jump through a couple of extra hoops, and they may need to start planning a little sooner than salaried employees, but qualifying for a mortgage and buying a home is possible. Just make sure it has a great home office!