Mortgage Approval Challenges for Freelancers and How to Overcome Them


Being a freelancer comes with its own set of challenges, from finding clients to managing your own schedule and finances. But one of the biggest obstacles that freelancers face is trying to secure a mortgage. The traditional mortgage approval process is designed for individuals with stable, 9-5 jobs and a steady flow of income. As a freelancer, your income may not fit into the traditional mold, making it difficult to get approved for a mortgage. In this blog post, we will explore the challenges that freelancers face when trying to secure a mortgage and provide some tips on how to overcome them.

The Challenges

The primary challenge for freelancers seeking a mortgage is proving their income and financial stability. Traditional lenders typically require two years of stable income and tax returns as proof of income. This may not be feasible for freelancers, as their income can vary greatly from month to month and they may not have a consistent record of tax returns.

Another challenge is that many self-employed individuals deduct a significant amount of business expenses, which can lower their taxable income and make it difficult for lenders to accurately assess their financial situation.

Furthermore, freelancers do not have a traditional paystub to show their income, which can be a red flag for lenders. They may also lack a steady work history, as they may have had multiple clients or gaps in between projects.

How to Overcome These Challenges

Despite these challenges, freelancers can still secure a mortgage with a little extra effort and preparation. Here are some tips to help you overcome the obstacles and increase your chances of getting approved for a mortgage as a freelancer.

  1. Keep Detailed Records
    One of the most important things a freelancer can do is keep detailed records of their income and expenses. This includes invoices, contracts, bank statements, and a record of all business-related expenses. These records can help you prove your income and demonstrate your financial stability to lenders.

It’s also essential to separate your personal and business finances. This will make it easier for lenders to see your business income and expenses without any confusion. Consider hiring a professional accountant to help you keep your financial records in order and accurately file your taxes.

  1. Build a Solid Credit Score
    Having a good credit score is crucial for all borrowers, including freelancers. Traditional lenders rely heavily on credit scores to determine a borrower’s creditworthiness. As a freelancer, you can work on building a good credit score by paying off debts on time and keeping your credit card balances low.

Make sure to keep an eye on your credit report and address any errors or discrepancies immediately. A good credit score can help offset any concerns about your variable income and make lenders more comfortable with approving your mortgage application.

  1. Be Prepared for a Paperwork Overload
    Freelancers should be prepared for the mortgage approval process to involve more paperwork than a traditional employee would have to provide. Lenders will want to see at least two years’ worth of tax returns, bank statements, and any other documents that can support your income and financial stability.

Additionally, freelancers may be asked to provide a profit and loss statement, a breakdown of your monthly income and expenses, and a letter explaining your business and how you generate income.

  1. Consider a Portfolio or Bank Statement Loan
    A portfolio loan or bank statement loan may be a good alternative for freelancers who cannot meet the traditional income requirements. These loans take a more holistic approach to assessing a borrower’s financial situation.

With a portfolio loan, the lender will look at your overall financial picture, including income, assets, credit score, and work history. Bank statement loans do not require tax returns and instead use your bank statements to show your income and financial stability. These loans are ideal for freelancers who have a substantial amount of money in their bank account and can provide a steady flow of income.

  1. Save for a Larger Down Payment
    If you have a variable income, you may want to consider saving for a larger down payment. A larger down payment can help mitigate any concerns about your income and make lenders more confident in your ability to repay the loan. It can also reduce your monthly mortgage payments, making it easier for you to keep up with them even during leaner months.

Final Thoughts

Getting a mortgage as a freelancer may seem daunting, but it is not impossible. The key is to be proactive, keep detailed records, and be prepared for a more thorough and paperwork-intensive process. Working on building a good credit score and saving for a larger down payment can also increase your chances of getting approved for a mortgage. Don’t be afraid to explore alternative loan options if you do not meet the traditional income requirements. With determination and patience, you can overcome the challenges and achieve your dream of homeownership as a freelancer.