Buying a home without a job is possible, but it's not easy. If you can't prove to a lender that you have a steady job, you'll instead need to prove that you have a sizable savings account, lots of liquid assets or a reliable source of income other than a traditional job. You can also help yourself if you have impeccable credit, a sizeable down payment or a co-signor. In some instances, those without a job can purchase a home through an owner carry-back arrangement in which the home's current owner agrees to act as the lender.
Flaunt Your Flawless Record
A lender's primary concern is your ability to make your monthly mortgage payments. If you're currently paying as much in rent as your mortgage will be, prove it by providing potential lenders with a copy of your lease as well as your current monthly utility bills. If you've been renting for awhile and have a good record and rapport with your landlord, ask him to write a reference letter detailing your excellent past payment performance and recommending you to the lender. Do whatever you can to prove you're doing just fine without traditional employment.
Ditch Your Debt
To get a mortgage without a job, you need to prove you're doing fine without one. The appearance that you're living off your credit cards doesn't send this message. Carrying debt makes it difficult to get a mortgage under the best of circumstances.
If you're looking for home financing without a job, debt can make the task impossible. Payback your debts as quickly as possible and get your credit score as high as you can before looking for a lender.
Shore Up Your Savings
Traditional mortgage lenders like to see that you have at least two months worth of living expenses stashed in your savings account for a rainy day. If you're applying for a mortgage without a job, they'll want to see even more. You're likely to need at least six months worth of expenses in your savings account before a lender will even consider you without a job, so save as much as you can. In addition to savings, put together a portfolio detailing all of your liquid assets.
Show Them The Money
If you don't have a job at the moment, you're still paying your bills somehow. Prepare to explain how if you want a mortgage. Tell potential lenders about any and all sources of income you do receive, including disability income, capital gains, alimony, child support, annuity payments, pensions, royalties and VA benefits. Money you receive from public assistance may even help you qualify for a loan if you can prove that you're likely to continue receiving it for three years or longer.
Submit to Subprime
A subprime mortgage is one with a higher interest rate than prime. A subprime mortgage comes with a higher interest rate, closing costs and fees than a prime mortgage. It is precisely these higher costs and interest rates that make a subprime mortgage possible. A bank uses these higher fees to offset the losses that they will incur if you fail to pay your mortgage.
As a result, subprime mortgages are easier to get. A subprime mortgage can work to your benefit, getting you into a house while buying you time to get a new job or otherwise improve your financial status so you can refinance later. Bear in mind, however, that you could pay far more for your house if you fail to successfully refinance and get out from under your subprime loan.
Find a Co-Signer
A co-signer is a person who agrees to guarantee your mortgage. By co-signing on your loan, this person agrees that they will pay the mortgage if you default and fail to do so. People with poor credit or too little income to qualify for a mortgage can sometimes find a friend or family member to vouch for them. Your co-signer is legally obligated to pay the mortgage if you don't.
Having another borrower from which to procure a payment often eases a lender's fears and makes a mortgage easier to get. The legal obligation to potentially pay your debt, however, can make co-signers hard to find.
Commit to a Carry-Back
Often referred to as seller financing, a carry-back mortgage is one in which the owner of the home you wish to buy acts as your lender. In this instance, you need only convince the home's owner that you're solvent rather than convincing a bank or mortgage company. A seller finance deal is likely to come at a higher interest rate than a bank loan but may still be less than a subprime mortgage.
To execute a carry-back, you will provide a promissory note to the home's current owner detailing the home's purchase price, the interest rate you will pay and the repayment schedule. As in a traditional lending arrangement, the lender can foreclose if you fail to make your payments as agreed and can sell your debt to another party.
You can often find sellers willing to perform a carry-back on Craigslist or through a Realtor. This type of arrangement is common among family members as well.
Tips for Freelancers
Sometimes the problem isn't that you don't have a job, but that you have a job lenders don't like. Freelancers and independent contractors, for instance, may have plenty of income but may not earn it consistently. In other cases, freelance income is simply difficult to prove, since freelancers don't receive a W-2.
In order to qualify for a mortgage as a freelancer, gather your tax returns to prove your income. Provide proof of your receipts as well. As an independent contractor or freelancer, the IRS allows you to deduct certain business expenses on your taxes. Doing so lowers your tax liability, but it also lowers your adjusted gross income.
If you know you want to buy a home, consider reducing the amount of business deductions you take for a few years. You'll pay a bit more tax for a year or two, but it may make getting a mortgage easier.
- If you know you will be buying a home in the future, work to get your credit score as high as possible by paying off debts and making payments on time every month. A high credit rating typically means that lenders are more willing to take a chance on you, and you are generally offered a better deal than if you have poor credit. This includes a lower down payment and lower interest rates when you buy your home.
- A no-documentation home loan typically carries an interest rate that is higher than conventional mortgages, so it will end up costing you more in the long run, but may be worth it in some situations.
- Have a real estate lawyer review your documents before you finalize any deals to avoid scams from lenders who prey on people looking for unconventional loans.