While working for yourself is the American Dream, freelance workers actually have a much tougher time procuring a mortgage. Here, the experts at TexasLending.com offer advice on how to prepare for homeownership without a pay stub.
Q: I work from home and don’t get a W2, or even a 1099. How do I prove my income to a mortgage lender?
TexasLending.com: That can be difficult but as long as you’ve filed your taxes properly for at least the last two years, you should be fine. Most underwriters require at least two years of returns, a copy of your Schedule C, and possibly bank statements to confirm your earnings before making a loan decision. If you don’t receive a 1099, you may also need to show proof of payment history.
Q: Are there loans available specifically for self-employed workers?
TexasLending.com: There are, but they may be more difficult to obtain and could come with higher interest rates or more fees since they are considered a riskier investment for the lender. The benefit of these loans is they allow applicants to use bank statements as proof of income.
Q: Does writing off my yearly expenses hurt me when it’s time to buy a home?
TexasLending.com: It can, because the more you write-off, the less money you’re worth, on paper anyway. When you write off a good chunk of your income at tax time, you have less financial power to qualify for a mortgage.
Q: Should I try to get prequalified?
TexasLending.com: Freelance workers may benefit the most from prequalifying for a mortgage since the lender may turn up information than can help you obtain financing. The prequalification process can also help you verify prior income has been consistent. This is a huge factor in determining whether or not you are approved – or denied – for a mortgage.
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