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Applying for a Home Loan as a Contractor (1099 vs W2 employee)

Getting a mortgage when you’re a freelancer or contract worker can be challenging. Even if your credit score is superb and you make good money, lenders are often more hesitant to approve loans for individuals who work in the gig economy.

However, if you prepare accordingly, ease any concerns that lenders may have, and tend to your credit, then you can navigate the process with flying colors! The Curtis Team has provided some practical tips and resources to help you get started: 

Come at It Prepared

Applying for a home loan can be complex for anyone, but freelancers should allow for even more time to prepare. 

  • Because your income may be irregular compared to that of a salaried worker, you’ll likely need to gather more documentation; be sure to get together financial dealings, all documented income, federal tax returns, balance sheets, and any other necessary paperwork for at least the last two years. 
  • Keep all of your documents organized and handy so that you can quickly provide them to the lender when it’s time. 
  • Start building a sizable down payment, as this will reduce your risk in the eyes of the lender.  
  • Get schooled on the various types of home loans, including popular FHA home loans.
  • Get approved before shopping for homes so that you will know where you stand financially and what type of home you can afford. 

Minimize the Red Flags 

For lenders, irregular income can be a great cause for hesitation. Here are a few things you can do to increase your chances of getting approved:

  • Show year-over-year growth so the lender can see you’re consistently at least the same amount of money year after year or more. 
  • Open a business account so that lenders can easily track your deposits and expenditures. 
  • Be careful with how many tax deductions you take, as it impacts your taxable income, which can be a red flag to lenders. 
  • Obtain an LLC banking resolution to authorize who within your company can access your bank account.

Shape Up Your Credit

And of course, take any necessary steps to improve your credit score and history. 

  • Check your score by getting free reports from Experian, Equifax, and TransUnion. 
  • Pay down as much of your balances as possible so that you can lower your debt-to-income ratio (DTI), including debts that are in collection.
  • Lower your credit utilization ratio to show that you’re not totally dependent on credit. 
  • Pay your bills on time and avoid opening any new lines of credit before applying for your mortgage.

As a freelancer, the process of applying for a mortgage may look a little different than if you work a traditional day job. Consider the tips above as you prepare for your application, and you will be in a better position to secure the home loan you need. And of course, don’t hesitate to reach out to The Curtis Team when it comes time to get a real estate agent!

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