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Over the past few years, jobs in the “gig economy” have become increasingly popular. Uber/Lyft drivers, pet sitters and dog walkers, freelancers, influencers, DoorDash/Grubhub drivers. The list goes on. Having the freedom to create your own schedule is exciting and enticing to those looking for a non-traditional 9-5 job.
But if you are in the market to buy a home, you might run into some trouble. Mortgage companies often see gig workers as someone with an unpredictable paycheck who lacks financial stability. But that doesn’t mean you can’t purchase a house! You might have to work a little harder to get to the finish line, but it is absolutely feasible.
Keep reading for some helpful tips to help you become a homeowner!
Proof of Income
Salary workers can easily provide lenders with a copy of pay stubs or W-2 forms, but as a gig worker, you likely won’t have these. Instead, you will need to provide a potential lender with tax returns and 1099 forms if you have them.
If you haven’t declared income and have been getting paid under the table, your tax returns will not reflect earnings from dog walking and could keep you from getting a house. So be honest with your lender and keep records of all of your transactions.
Tip: Keeping your personal and business funds separated may prove helpful when applying for a mortgage. Consider having a business bank account that can showcase deposits and expenses related to your income.
Solid Credit
With having a variable income, lenders will likely look for a higher credit score to prove you can pay the bills. When you are first considering purchasing a home, try to get your credit score to a minimum of 700, which is considered an ideal score.
Need help building your credit? Paying incoming bills on time and paying off debt will boost your score. Avoid opening a new line of credit and making large purchases until after closing on a house.
Debt-to-Income Ratio
As mentioned above, paying off debt will help give your credit score a boost. Your debt-to-income ratio is measured by what your monthly debt is compared to your income. The lower the number, the better chance you have for being approved for a mortgage. Pay off outstanding credit card balances and pay towards any large loans you have, such as auto and school loans, before applying for a mortgage.
Down Payment
Save. Save. Save. An advantage of being a gig worker is working when you want. Maybe you only work every other month, three days a week, half of the year. Whatever your schedule looks like, you have to prove you are good at saving.
Having a larger down payment for a house will help you appear less risky to a lender. If possible, save for a down payment of 20% or more; this will prove you have a reserve of money despite having an income that fluctuates.
The most important piece of advice is to plan ahead. If you know you will be in the market for a home, start planning and organizing now. You know that income and employment history will be main factors in determining approval for a home loan, so start saving your earnings, documenting all transactions, and start paying down your debts.
Sources:
https://blog.movement.com/2021/05/19/buy-home-working-gig-economy/
https://www.rate.com/resources/mortgages-in-the-gig-economy
https://www.fool.com/the-ascent/mortgages/articles/applying-mortgage-gig-worker/
