Tips For Getting a Mortgage as a Gig Worker

If you are like many people in recent years, you may have chosen to toss aside the 9-5 job and become a gig worker. Whether you are driving for Uber, writing freelance articles or performing other services as your own boss, being a gig worker offers you flexibility and personal satisfaction. Unfortunately, it can also be harder for you to obtain a mortgage. Since gig workers are not usually issued W-2 forms, you may have little idea how to organize your finances so that you gain loan approval from a lender. If so, here's what you need to know.

Qualifying Criteria

Even though today's guidelines within the mortgage industry are virtually the same as they were 30 or even 40 years ago, this doesn’t mean you as a gig worker will be on the outside looking in when trying to obtain a mortgage. Actually, whether you work for yourself or are a full-time employee at a company, the qualifying criteria to get a mortgage is the same. When applying for a mortgage, your CPA can remind you that lenders focus on your credit score, the assets you own and especially your income history.

Two Years of Consistent Income

As for your income history, lenders always want to see at least two years of recent income history that demonstrates consistency. As a non-traditional home buyer, this will likely be your biggest hurdle, especially if you are in the midst of transitioning to gig work from a previous job at a company. However, the good news is that requirements for obtaining mortgages can vary greatly from lender to lender, so don’t be shy about shopping your mortgage needs with different lenders until you find one that will be the most helpful and willing to work with you on a mortgage.

Necessary Documents

When you apply for a mortgage as a gig worker, expect to be filling out lots of paperwork. You will need to provide numerous documents for your lender to review when assessing your application. The most important will be two years of your federal income tax returns, which may or may not include personal and business returns. Also needed will be your most recent business bank statements, a current profit-and-loss statement, and copies of your credit score and credit reports from Equifax, Experian, and TransUnion. Some lenders may also ask you to provide a letter from your CPA stating you have been in business for at least the past two years.. Your CPA will be happy to provide this, so don’t hesitate to ask.

How to Get Approved

If you want to increase your chances of getting approved for a mortgage, there are two important steps you should take. First, you should either maintain your current high credit score, or at least work on getting it as high as possible. To do so, always pay your bills on time, pay down as much debt as possible, correct mistakes on your credit reports, and don't go over your credit limits. The other thing you can do is to lower your debt-to-income ratio. Usually, lenders want this to be no higher than 43 percent for gig workers. Thus, you should try to avoid taking on new debt, and also pay off your existing debt as fast as you can. Should you be able to do all of this, you may be able to save up for a higher down payment, which can also increase your chances of gaining mortgage approval.

Best Mortgages for Gig Workers

If you have never applied for a mortgage as a gig worker, take note that not all mortgages are alike. It definitely pays to shop around to see what's available. While you may be able to get a traditional loan through lenders such as Freddie Mac and Fannie Mae, you may have trouble qualifying for these loans if you don't have outstanding credit and a long, strong income history. For many gig workers, mortgages from either the Federal Housing Administration (FHA) or the U.S. Department of Veterans Affairs are the answer. Along with accepting lower credit scores in the 600s, they are open to veterans or others who meet certain qualifications.

Work with Specialized Lenders

As the gig economy has become much more mainstream over the past several years, many newer mortgage lenders are choosing to specialize in helping gig workers get approved for mortgages. While you should of course pursue mortgage loans through traditional lenders, don't be afraid to seek out the help of newer lenders who advertise that they are geared towards gig workers, freelancers and independent contractors. With gig workers becoming more common, newer lenders are often choosing to have requirements that are less strict than in years past. However, remember to not get carried away during your home search. Instead, seek out properties you know you can realistically afford based on your income.

Can Gig Workers Get Pre-Approved for Mortgages?

Yes. Just like home buyers who are working in traditional salaried positions within companies, gig workers can also gain pre-approval from mortgage lenders. To do so, you will need to submit most if not all of the documents mentioned earlier. Once everything is submitted, don't be surprised if the lender calls your bank or CPA to verify your income and how long you have been in business for yourself. As for how long it may take to get pre-approved, it can vary from as little as 24 hours to perhaps one month.

It may feel as though you are fighting an uphill battle to get a mortgage as a gig worker. But don’t worry, it can happen. From gathering together your tax returns and other financial documents to learning as much as you can about which lenders may offer you the best opportunities for approval, your CPA's years of experience can help you navigate these and other complexities.