If you`re an independent contractor looking to buy a home, you might be wondering how to get a mortgage loan. Unlike traditional employees who receive a W-2 form from their employer, freelancers, gig workers, and self-employed professionals have to prove their income and creditworthiness in different ways.
Here are some tips on how to get a mortgage loan as an independent contractor:
1. Document your income
The first step in getting a mortgage loan as an independent contractor is to document your income. You will need to provide tax returns for the past two years, including Schedule C (Form 1040), which shows your net profit or loss from your business. You may also need to provide a profit and loss statement, balance sheet, or bank statements to support your income.
2. Build a strong credit history
Your credit score and credit history will play a significant role in determining your mortgage loan eligibility and interest rate. Make sure you have a strong credit history by paying your bills on time, keep your credit card balances low, and fix any errors on your credit report. You can check your credit score for free at sites like Credit Karma or NerdWallet.
3. Save for a down payment
Independent contractors typically need to make a larger down payment than traditional employees. Lenders usually require a down payment of at least 20% of the home`s purchase price to qualify for a mortgage loan. Saving for a down payment can take time, but it`s necessary to show your financial stability and ability to repay the loan.
4. Shop around for lenders
Not all mortgage lenders will work with independent contractors, so you`ll need to shop around to find the right lender for your situation. Look for lenders who specialize in working with self-employed borrowers and offer flexible loan programs with competitive rates. You can also work with a mortgage broker who can help you find lenders who fit your needs.
5. Be prepared for additional scrutiny
As an independent contractor, you may face additional scrutiny from lenders because of your non-traditional employment status. Be prepared to provide additional documentation and answer questions about your income, job security, and creditworthiness. The more prepared you are, the smoother the loan approval process will be.
In conclusion, getting a mortgage loan as an independent contractor requires careful preparation and documentation of your income, creditworthiness, and financial stability. By following these tips, you can increase your chances of qualifying for a loan and buying your dream home.