People who work full time jobs as company employees generally have an easy time documenting their income for the purposes of buying a house. They can go to mortgage lenders with just a few slips of paper and be able to prove they have enough income to afford the house they want to buy. Contractors and freelancers are a different story. For them, the process of getting a mortgage can be nothing short of a nightmare.
The biggest challenge for contractors and freelancers is proving to lenders that they have the capacity to generate sufficient income to afford a mortgage. That can be tough because contractors and freelancers are not employed in a traditional manner. They are their own bosses for all intents and purposes, so they are guaranteed pay only as long as they can maintain active contracts.
As a contractor or freelancer, you can buy a house. You can obtain a mortgage from bank or private lender. It may take a little more work on your part, but it’s entirely possible. Below are some tips you should find valuable in the pursuit of purchasing a home. As you go through them, remember this: do not give up. There are mortgages out there designed specifically for contractors and freelancers like you.
Document Absolutely Everything
One of the biggest problems contractors and freelancers face when trying to buy homes is a lack of sufficient documentation. They tend to keep only enough records to satisfy the taxman. That’s reasonable to a certain degree, but it will come back to haunt you whenever you attempt to obtain credit. Creditors want to see more than just tax information.
Your best bet as a contractor or freelancer is to document absolutely everything pertaining to your business and income. Keep receipts for every single business expense. Make a record of every payment you receive, regardless of how small it might be. Document all of your business transactions, all of your personal expenses, and every source of income you have in addition to your contracting income. The more information you can provide, the better your chances of getting a mortgage.
Keep Your Records Electronically
As long as you are documenting everything, you can further your cause by keeping your records electronically. Some contractors prefer simple spreadsheets covering all of their different accounts. Others use a small business accounting software package. Your choice is not as important as the ability to print out detailed reports that you can give to mortgage brokers or bank underwriters.
Electronic records are easier to read than written records. They are seen as more reliable, too. Best of all, utilizing an electronic record-keeping system gives brokers and underwriters the perception that you are organized and professional in your business dealings. Such perceptions can only help your cause.
Work with a Mortgage Broker
This next tip is perhaps the most important one of all: work with a mortgage broker rather than going directly to a bank or private lender. The reason here is simple. There are plenty of private lenders out there who specialize in mortgage products for contractors and freelancers. Your bank will not know about them, nor does it really want to know.
Going through broker gives you access to all of those mortgage deals banks and private lenders don’t offer directly. A broker can also offer you specialist contractor mortgage advice that you’ll never get from a bank or building society.
Limit Down Time between Contracts
The last tip is that you limit downtime between contracts. In the eyes of a mortgage underwriter, contractor downtime is equal to unpaid time off for a standard employee. It doesn’t look good in terms of a borrower’s ability to repay. For contractors and freelancers, it immediately raises questions about whether or not a borrower is capable of maintaining employment.
The general rule of thumb is to not have more than six or eight weeks of downtime per year. If you can keep it closer to one or two, that’s even better. When downtime is unavoidable, it is best to limit it to a week at a time. In other words, do your best to ensure that there is no more than one week between the end of your current contract and the start of the next one.
Mortgages for contractors and freelancers are out there. You can buy a house even if you make your living doing contract work. You can buy a house even as a freelancer moving from one job to the next. Take heed of the tips described in this post and you should be okay. Document everything, keep electronic records, use a mortgage broker, and limit your downtime. A mortgage lender cannot ask for anything more.
Categories: Real Estate