How to get the mortgage you deserve as a gig worker

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If you’re not tethered to an employer and find yourself hopping from job to job, there are dozens of job titles you “assign” yourself. Whether you call yourself a freelancer, temp worker, independent contractor — it’s all the same term for a job that feeds the gig economy.

Unsurprisingly, this widely-accepted way of work, which satisfies a work-balance for millions of Americans, isn’t going away anytime soon.

In fact, according to a research study by the robo-advisor firm Betterment, more than one in three workers are freelancers and Forbes predicts that half of U.S. workers will be freelancers by 2020.

According to NACo, the growth of the gig economy represents a change in the ways that Americans view what work means to them. Instead of working full-time for only one employer, some workers choose to enter the gig economy for the flexibility, freedom and personal fulfillment that it provides.

However, there’s a downside to this freedom — your income could be perceived as “riskier” if you want to get a loan, especially when it comes to getting a mortgage.

Types of gig workers

There are two types of gig workers: “independent” and “contingent” workers. Independent workers are those who are truly their own boss. Contingent workers refer to individuals who work for another company or companies, just like regular employees might, minus the security and all the other benefits that come with being a full-fledged employee.

Blow that up on a larger scale and the gig economy is made up of three more components:

  • Independent or contingent workers who provide services
  • Consumers who need a specific service performed
  • Companies that connect gig workers to those jobs

Despite the flexibility and other perks, sometimes the outlook isn’t always so rosy. In that same Betterment study, 40 percent of workers said they feel unprepared to save enough to maintain their lifestyle during retirement.

Gayle Schadendorf has been a freelance graphic designer for 23 years and said that throughout her career, she’s worked almost exclusively for one corporation. However, due to corporate layoffs, she has lost her connections with art directors and hasn’t worked for that company for a year. “Freelancing is stressful if you don’t have the work,” she says. “My work has decreased completely in the last year because there’s really only one art director left that I had a decades-long relationship with. The climate has changed. When they need freelancers, they need them. When they don’t, they don’t.”

Real-world implications

When it comes to tasks like buying a house and saving for retirement, are these even possible when you’re a part of the gig economy? After all, when it comes to getting a mortgage, freelancers can’t whip out their W-2s and hand them to a lender as proof of income.

For those knee-deep in a sole proprietorship like Schadendorf, the process of buying a house is slightly different compared to most conventional mortgage borrowers.

“I planned ahead, had no debt and a great mortgage lender, plus two years of income history,” she says. It’s a succinct summary of her journey, which led to the purchase of her first condo in Minneapolis and her second in San Diego.

She said that her excellent relationship with her mortgage broker was key to the process when she bought her condo in Minneapolis. “She ran the numbers with my two years of taxes and the money I had in the bank and my credit score at the time,” says Schadendorf. The broker wanted proof of future income as well. Schadendorf said she already had large contracts lined up with her employer and could show that she’d have future contracts even after she closed on the property.

Things to know about applying for a mortgage as a gig economy worker

Though a lender might look at “gig-ers” differently, there are some components of getting a mortgage loan that stay the same, no matter your job title. These tips, while they offer slight modifications for independent or contingent workers, are generally what most individuals who want a mortgage can follow. It’s a great idea to:

  1. Check your credit. To make sure nothing is amiss, go to, order your three free credit reports and alert the credit rating agency immediately if there are any issues. You can also continually monitor your credit by creating an account, here. The higher your credit score, the more likely it is that a lender will lend you money for a home.
  2. Share at least two years of tax returns. This is unique to those in the gig economy. Understandably, you look riskier to a lender when you offer up 1099s instead of W-2s. Your lender wants to be sure your income will stay consistent in the future and that you can make your mortgage payments.
  3. Save as much money as you can. If you want to avoid private mortgage insurance (PMI) it’s in your best interest to save at least 20 percent of the purchase price of the home. PMI is insurance that protects your lender in case you default on your mortgage. Premiums are usually paid monthly and vary from a fraction of a percent to as much as 1.5 percent of the value of your loan. If you want to prove your mettle as a reliable borrower, save even more than 20 percent.
  4. Get pre-approved. Pre-approval could be even more important if you’re a freelancer. It’s a guarantee from your lender that you’re eligible to borrow a certain amount of money at a certain interest rate. Know what forms you need, including W-2s, 1099s, bank statements, 1040 tax returns, etc.
  5. Be aware of how deductions are viewed. If you claim a lot of deductions to reduce your taxable income (such as deductions on work supplies, etc.), lenders could view it as a disadvantage.
  6. Know your debt-to-income ratio (DTI). Your DTI measures the relationship between your debts and income. Fannie Mae requires a DTI at or below 50 percent. To find your DTI, simply add up your monthly bills, including student loans, alimony, child support, monthly rent, etc. Divide the total by gross monthly income, or income before taxes.
  7. Check out the best mortgage rates. Know that your credit score, DTI and down payment all intersect to determine your mortgage interest rate.
  8. Research your lender. Know that when you walk into a bank or other lending institution, the individuals who work there will try to sell you their products at their interest rates. Do your research beforehand to be sure that based on your qualifications, you really are getting the best interest rate possible.

Other assistance options

If you don’t qualify for a conventional loan, you could look into an FHA loan, VA loan or USDA loan — all government-backed loans. These loans have varying income level and credit score requirements. They could be your best option if you find yourself cash-strapped or have a low credit score.

An FHA loan is a loan issued by banks and other lenders and insured by the Federal Housing Administration. You can qualify for an FHA loan with a credit score as low as 500 with 10 percent down. To get the maximum financing, you need a credit score of 580 or higher and 3.5 percent down.

A VA loan is partially insured by the Department of Veterans Affairs. Regular military, veterans, reservists and National Guard are all eligible to apply. Qualified spouses may also apply. The main perk to VA loans is their no-down payment and low credit score requirements.

A USDA loan is another option, but only if you want to live in a rural area — some suburban areas qualify as well. To qualify for this zero-down payment mortgage, you must have low-to-moderate income and the property location must fit the bill. You must also have an appropriate DTI to qualify.

New Self-Employed Mortgage Access Act

The Consumer Financial Protection Bureau (CFPB) put the qualified mortgage (QM) rule into effect on January 10, 2014. In one fell swoop, the QM rule made it harder for those without a traditional income to qualify for a mortgage. It also required lenders to offer loans that could protect borrowers from mortgages they cannot afford and lower the risk of defaults. It included these features:

  • An ability-to-repay rule
  • Restrictions on risky loan features
  • Caps on fees and points
  • Required borrowers to have a healthy DTI ratio

The Self-Employed Mortgage Access Act, co-sponsored by Sens. Mark R. Warner (D-Va.) and Mike Rounds (R-S.D.), could alleviate the roadblocks for those in a gig economy. It would expand lenders’ permissible sources to verify incomes beyond the relatively narrow range specified in current qualified mortgage regulations. According to Warner, as many as 42 million Americans — roughly 30 percent of the workforce — are self-employed or in the gig economy.

“Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income — pay stubs or W-2s — as someone who works 9 to 5,” said Warner as the bill was introduced.

An NQM could be an option

A non-qualified mortgage (NQM) is a loan that doesn’t meet the standards of a qualified mortgage. The difference between the two includes whether a government agency protects the lender if any type of lawsuit is filed against them. NQMs are often an option for those who can’t prove their income through traditional means.

Typically, those who take on a NQM are:

  • Self-employed
  • Have a high debt ratio
  • Have less-than-perfect credit

The catch? You need to have a large down payment and higher credit scores in order to qualify for an NQM. Lenders can also charge you a higher interest rate and/or fees.

The bottom line

One trick that could help is to think like your lender. If you’re a member of the gig economy, think about what a lender sees. If you need to increase your credit score, for example, that could help you, particularly if you’re after a conventional loan.

Here are some small steps you can take to help increase your score:

  • Pay balances on time. Payment history helps determine your credit score. Make a conscious effort to pay balances in full and on time.
  • Don’t open new lines of credit. Every time you open a new credit card, your credit score can go down. Try not to open a new card unless it’s absolutely necessary.
  • Underutilize your credit. Your score is better when you use less of the available credit you have. If you constantly bump up against the $10,000 limit on your credit card, that could be a red flag to a lender.

Finally, have all your ducks in a row so you can prove to the bank that you can do it. “It’s all about what the bank tells you that you can afford,” says Schadendorf. “I ramped up the work and lived in Des Moines for a year until my actual condo was ready and made extra money. My credit score was very high and I had the AGI that was needed to get the loan for the type of condo I needed. It’s all about planning ahead, at least six months ahead.”

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