When it comes to obtaining a mortgage, the process can be a bit different for people who earn their income through alternative sources. For those who work in contract jobs, freelance or other areas of what’s known as the “gig economy,” income can be less predictable – and this can make certain parts of the loan application and approval process a bit unique.
At Altius Mortgage and our partners at Mortgage Ogden, we can help provide a variety of home loan options that are flexible and fit even alternative income households. We can also offer tips and expertise for people in the freelance or contract world – what can you do to simplify things a bit and make yourself a good candidate for a mortgage? Here are some important areas.
Part of the issue with people in this position is that it’s harder to provide future income information to lenders, who typically use this information to determine your creditworthiness and what kinds of amounts they can safely extend to you. For this reason, a big emphasis throughout this process will be providing them with significant past evidence that helps bridge this gap.
For starters, get paperwork together for at least your last two years of financial dealings. Prepare copies of your signed federal tax returns, plus profit and loss statements for these years. List debts and assets, plus two years of documented income from all sources. This may not completely remove the hurdles in terms of your future income, but being able to show a solid history here can go a long way.
Abbreviated DTI, debt-to-income ratio is important in virtually all loan situations. It tells lenders a lot about the risk inherent in lending you money, and the lower this number is, the less risk you represent. For this reason, take all the steps you can toward paying your balances off and getting them as close as you can to zero ahead of a loan application.
One other big way to tip the scales in your favor here by lowering risk for the lender: By building up a solid down payment amount. Having a sizable sum here will reduce your loan-to-value ratio, which is a number that represents the relationship between the mortgage amount and the property value you’re purchasing. When this ratio is low, the lender is at less risk because a higher percentage of the home is already owned, rather than still pending payment. So for this reason, do everything you can to build up a solid down payment well in advance.
For more on how to plan for a mortgage and homeownership as a freelancer or contractor, or to learn about any of our mortgage loans or refinancing programs, speak to the staff at Altius Mortgage today.