How to Get a Home Loan If Your Are an Independent Contractor

Freelance workers are considered home loan risks.

Freelance workers are considered home loan risks.

You can get a home loan if you are an independent contractor, but the process is much more difficult than if you had a salaried job with a company. Lenders are typically very cautious when it comes to approving loans to independent contractors. Applying for a mortgage means submitting extensive paperwork that verifies your income. To be approved, you must show that your income is stable. It's even better if you can show that it is stable and increasing.

Prepare before you start looking at for loans. Keep detailed records of your yearly earnings and net income. The documentation you need will include tax documents such as Form 1099s and tax returns, bank statements and client receipts.

Establish your business to show consistency and stability. If you just started your business you will likely have a difficult time being approved. Lenders want to see has a record of stable income and growth over a certain period of time. Being able to verify income for at least two years will make it easier to get approved for a home loan.

Reduce your tax deductions so you can increase your taxable income on your tax returns. Though you will be taking a tax hit, showing a larger amount of taxable income can help you secure a home loan. Limit the number of tax write-offs for two years before applying for the mortgage.

Pay off your debts prior to applying for a mortgage. Debt might send the message that you are not financially responsible. This is the wrong image to portray when applying for a home loan, especially for a contract worker. Showing that you have paid off your debts lets lenders know you are responsible when it comes to managing money.

Establish a cash reserve. The risk with independent contractors is that income fluctuates. Banks and lending institutions fear that contractors will not have the money to maintain their mortgage. You can reduce that risk by having one year’s worth of mortgage payments in the bank in some sort of liquid form, such as in checking, savings and CD accounts.

 

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