When Denise and Daniel West started shopping for a mortgage in 2011, they were turned down left and right. The reason? Daniel didn't have a full-time job, working sporadically as a guard for a security company.
"One week, he'd freelance for them, and the next, he wouldn't work at all," Denise explains. Although she was working full-time, as a couple they didn't have the steady flow of income that lenders like to see. "Due to these income fluctuations, we were denied mortgages when we first applied."
It's a common scenario: One-third of Americans earn their paycheck as Uber/Lyft drivers, freelancers, TaskRabbits, sole business proprietors, eBay sellers, or contract workers. Many of them want to buy a home, but lenders can be leery of extending credit to people who lack full-time employment.
Nonetheless, eventually the Wests did manage to nab a $216,000 home loan and purchase a three-bedroom condo in Union City, NJ. So what's their secret -- and how can other home buyers follow in their footsteps? Read on to learn how to land a home loan without full-time work.
Flaunt your track record
Prove to your would-be lender that the real estate investment you're eyeing is safely within your already established budget.
"Say you've been renting for $1,200 a month," says Rocke Andrews, president of the National Association of Mortgage Brokers. "Say your proposed mortgage plus maintenance brings your monthly housing costs to $1,050. Show you've been paying $150 more in rent -- and have been doing so consistently over time." Rent stubs -- and a letter from your landlord confirming that you've covered your expenses promptly and in full -- will bolster your case.
The same goes for documentation from past and previous lenders. The Wests, for instance, provided proof that they had paid their student loans, credit-card bills, insurance invoices, and car payments in full and on time.
"Don't just show you have the ability to cover your debts," says David Luna, a Salt Lake City mortgage broker and the former commissioner of real estate for the state of Utah. "Pay ahead of schedule if you can, proving you're willing to make transactions as easy on your lenders as possible."
In order to qualify for a mortgage, you need to prove not only that you have a steady income and a solid credit history, but a generous nest egg in reserve.
"Consider that scenario in which buying a new home would cost you $1,050 per month," says Andrews. "At a minimum, lenders will want to see that you have a reserve of two months' expenses, or $2,100. But ideally, you want to have at least six months' expenses -- or $12,600 -- in assets that you can readily liquidate." The bigger your safety net, the greater the chances that potential lenders will let your mortgage application fly.
Validate your income
"At a minimum, you want to show that you've been doing what you do to earn money -- and doing it successfully -- for two solid years running," says Andrews. You also want to demonstrate that your income is rising instead of declining.
"Aim to show that in 2015, you earned more than you did in 2014, and that in 2014, you earned more than in 2013," says Luna. "Get tax forms and other documents that show your income inching higher and higher for as many years running as possible."
Get a co-signer
If you can't land a mortgage on your own, consider asking a family member or business associate to co-sign with you. As a freelancer or contract worker, do you have employers with whom you've developed longstanding relationships? Enlist them to help your case. Submit contracts showing you have guaranteed work from them in the future (noting that the longer those contracts stand, the better).
"Also get letters from them stating that you're reliable and reputable, and that they don't expect any declines in your income or work for them in the future," says Andrews. West's husband got just such a letter from the supervisor at his security firm (where he eventually landed his current full-time job).
Sum it all up
When you're done compiling (and carefully proofreading) all the documentation you need to supply, cap it off by writing a letter that summarizes your case.
"Here, you want to connect the dots," says Luna. "Reaffirm your stability, ability, and willingness. State your application's strengths. And keep it brief. Three-quarters of a page should do."
Failed to secure the first home loan for which you applied? Don't give up hope.
"The lender we thought would be a sure bet -- our family credit union, where we had longstanding savings accounts and credit cards -- turned us down flat," says West. "We managed to land a mortgage not by going with them or with a traditional bank, but by finding a lending company that specialized in helping borrowers whose situations were outside the normal box." Your real estate broker -- and nonprofit agencies in your community that focus on helping homeowners -- can steer you toward lenders who are right for you.
"We did what we needed to make our case," says Denise. "We showed pay stubs, back tax forms, the works. Our mortgage approval took three months, but we got through it because we did our homework -- and did it right."
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