The gig economy is shaking up the mortgage industry. Here’s what you need to know if you’re a freelancer trying to get a mortgage.
How Is Borrowing Different in Gig Economy?
Traditionally, lenders looked at the amount of money borrowers were earning from their employers, and as long as the borrower had been at the job for a certain amount of time, the lender felt comfortable that the borrower would be able to make the payments.
In contrast, when someone works for the gig economy, lenders can’t just ask the borrower’s employer about their income. Instead, they have to find other data points to assess if a borrower is likely to repay a mortgage successfully.
Are There Laws About Lending to People in the Gig Economy?
The Senate introduced a bill in August 2018 to make borrowing easier for people in the gig economy, but at the time of writing, this bipartisan law has not yet passed. Essentially, the law requires underwriters to dig deeper into the financial background of freelancers, rather than just rejecting their applications because they are “gig” workers.
If this happens, lenders will have to compete to attract these borrowers. At the same time, the increased borrowing may stimulate the economy because so many workers are freelancers.
What Can Gig Workers Do Now?
However, if you’re looking for a new home, a proposed law may not seem that helpful. Luckily, you have options right now. Many borrowers are taking matters into their own hands and figuring out ways to assess mortgage applications from freelancers.
In the past, lenders offered income-stated mortgages. Typically, these mortgages had a slightly higher interest rate, and in exchange, the borrower didn’t have to prove their income. However, after the financial crisis in 2008 and 2009, the government cracked down on these types of loan. Now, to get a mortgage, gig workers need to find a lender that is willing to assess alternative criteria.
What Do You Need to Get a Mortgage?
As you know, gig work can encompass a variety of different pursuits. One person may walk dogs, drive for a ridesharing company, and juggle a bit of childcare. Another individual may get writing gigs, do graphic design, or pursue other professional activities. Regardless of what you do, you need to be prepared to make an argument that your income is steady.
To do that, you should be able to show the lender about two year’s worth of bank statements or potentially even accounting records from your business. Beyond that, you should also think about the following:
- A downpayment
- Credit score
- Savings to cover mortgage payment if income falls
- The value of your skills and trade in the current economy
At Bright Path Brilliant Mortgage Solutions, we want to see our clients get into their dream homes. We work with people in all kinds of situations, including people who work in the gig economy. To learn more or to apply, contact us today.