Are you self-employed? Do you get hired to complete specific tasks, projects, or services by a range of clients or employers? If so, you are considered a freelancer, and the process of securing a mortgage will be different for you than that faced by most people. Though it tends to be a bit more complicated for freelancers to secure mortgages, it is certainly still possible.
Unfortunately, most freelancers must deal with longer timelines when trying to secure a mortgage. That is because most lenders are only willing to approve a mortgage loan for a freelancer if they can prove a history of making good and consistent profits for at least two years before applying for the loan.
If you have been working as a freelancer for a while, you may be able to provide proof of income right away. However, if you are newly self-employed, this could potentially delay your mortgage approval until you can provide the necessary documented proof of your income.
Why do freelancers find it difficult to get mortgages?
There are numerous reasons freelancers face more challenges when it comes to the mortgage application process. Lenders prefer to work with borrowers who earn a regular salary and they tend to feel more insecure about lending to freelance workers.
Since many freelancers deal with fluctuations in their income due to the nature of their work, lenders see this as an unstable form of employment, one that comes with a higher risk of default. This is one reason why they are more reluctant to provide loans to self-employed individual. If they do approve a lona for such a borrower, they typically charge higher interest rates than they would for salaried borrowers.
Even if your overall income is high, if it has gone through lower periods in recent years, that could give a lender the impression that your income is inconsistent and, therefore, unreliable. Consequently, most lenders require that you provide more extensive documentation that tracks and proves your income. You may face even more obstacles during your mortgage application process if you are relatively new to freelance work since your lack of experience in that domain leaves more room for uncertainty in the eyes of the lender.
Of course, everyone applying for a mortgage loan must go through a credit check and an evaluation of their debt-to-income (DTI) ratio. However, lenders may examine these factors even more scrupulously while considering your loan application if you are a freelancer.
How to Boost the Chances of Getting Your Mortgage Approved as a Freelancer
Although getting a mortgage as a freelancer is more challenging, there are a few different ways they can improve their chances of getting approved. Since it is much harder to prove the stability and consistency of your income without thorough documentation, you should save all documents verifying your income, such as employment information, letters confirming completed work, receipts, contracts showing expected revenue in the near future, and bank statements. Ideally, you will have a few years worth of information to provide so the lender has a clear picture of your financial stability.
Lenders will also be interested in seeing copies of your tax self-assessment forms from previous months and your notices of assessment (NOA) from previous years.
Aside from preparing an adequate amount of documentation, it helps to demonstrate that you have a good handle on your finances. Lenders will probably want to see that you have a decent amount of money saved. That will help them to determine whether you are financially prepared to take on the necessary budgeting that comes with the expenses of owning a home. Improving your credit score and maintaining a good track record of paying off your consumer debt will also show your financial responsibility.
Additionally, if you express your intentions to put a large amount of money down on your house, it will encourage lenders to treat you more favourably. These are all potential ways to prove to your lender that you are not a risky borrower despite being a freelancer, which will make them more inclined to approve your mortgage and offer you competitive interest rates.
Why Freelancers Can Overcome Mortgage Approval Obstacles
As technology has become ever-ingrained in our society, more individuals are earning a living through unconventional means. From podcasting and influencing to online writing and web development, more workers than ever are working online, and many of them are working on their own as freelancers. Statistics Canada has reported that as of 2020 over 2 million Canadians are freelancers.
Although freelance work is becoming increasingly common these days, it is still a relatively new phenomenon. As such, in the eyes of most major lenders, freelancers pose higher risks than regularly employed individuals. Thus, getting a mortgage as a freelancer can be harder than getting one with proof of stable employment since it requires you to overcome more hurdles.
However, freelancers deserve to purchase houses, too. Just because your employment situation is unconventional, it does not mean you cannot bear the weight of mortgage debt.
Freelancers should know that you can get approved for a mortgage and still secure favourable interest rates as long as you can demonstrate that you are not a risky borrower. If you can show your financial strength by providing detailed documentation of your income, it will put the mind of your lender at ease.
Of course, it also helps to prove your financial responsibility in various ways, such as maintaining a good credit score, saving as much money as possible, and paying off your debts. Although it may take a lot of work to secure mortgage approval as a freelancer, it will certainly pay off when you can move into the house of your dreams.