The homebuying process may seem daunting, especially for first-time buyers. When you’re a freelancer, your sometimes complicated finances can make buying a home feel even more out of reach. But fear not: you have plenty of great resources at your disposal to help guide you.
Check out these pro tips for freelancers looking to buy their first home, courtesy of some mortgage experts at Alliant Credit Union.
1. Practice makes perfect
Simulate setting aside the amount of money you’d be spending on a mortgage given your budget, says Jerrold Anderson, Alliant Vice President of Residential Lending. You’ll get a chance to feel like a homeowner before making any commitments. This is especially important when your income is variable, as it allows you to get an idea of the financial impact through both the highs and the lows–and whether you can afford the mortgage your lender approves. “If a lender tells you the maximum you can qualify for and you don’t know your limits, you may become overextended. It’s not good to be house-rich and cash-poor,” Anderson says.
2. Gather your documents
To prove your annual income as a freelancer, lenders may require at least two years of business and personal tax returns filed with the IRS, says Mark O’Dell, Alliant Residential Loan Production Manager. Documenting your income can quickly become a challenge if you don’t take a consistent and organized approach. Keeping this information updated and organized will make the homebuying process much easier. Know your credit score, track your monthly expenses and income, and be upfront about any outstanding loans or debt.
3. Get prequalified early
“The best advice we could give is to speak with a loan officer and get pre-qualified very early in the home-buying process,” O’Dell says. That will allow you to know which home values to target in your search, and give you more confidence about your homeownership prospects. Most importantly, don’t underestimate the importance of your relationship with your lender. While real estate agents get the more glamorous job of showing you your future home, good mortgage lenders keep it real and provide support by helping you choose the right loan while ensuring you have enough money left to tackle your other financial goals.
4. Know your down payment options
Many first-time buyer candidates have the credit and income requirements met, but have not yet saved up for the down payment. And since saving on a freelancer’s variable income can be a challenge, it’s no wonder that a large down payment is perhaps the most common obstacle to homeownership that freelancers face. But the days of needing 20 percent down are over, Anderson says, with many lenders offering zero or low down payment loans.
For example, Alliant just introduced a zero down payment mortgage to qualified first-time homebuyers. The mortgage includes a program to eliminate private mortgage insurance (PMI) – as the PMI requirement is a drawback for many low down payment loans – and does not have income limits. Your down payment can affect your rate and monthly payment, so make sure to weigh all the pros and cons with your lender and financial advisor before making a decision.
5. More than the mortgage
One benefit to a lower down payment is that you should have more cash on hand for other expenses. Because remember, after you move in, the spending doesn’t end there. New furniture, appliances, decorating, higher utility bills, association fees, lawn care and general maintenance expenses also will put financial pressure on new homeowners, so budget accordingly. When it comes to additional expenses, freelancers have even more to think about. There is a good chance you are doing most, if not all, of your work from home. Planning for your home office needs should be a top priority when thinking about the overall budget and requirements for your new home.
6. Find a real estate agent
Once you know your budget and you’re prequalified for a loan, you’re ready to start looking at homes. O’Dell says a good real estate agent – someone who will listen to your needs and who knows your market – can make a world of difference. So, if you’re looking for a condo downtown, you’ll likely want a different agent than if you’re aiming for a house in the suburbs.
Also, programs like Alliant Home Rewards, which pairs homebuyers with a local real estate agent and also offers a cash-back rebate, can be valuable tools for finding the right agent while helping to streamline the entire homebuying process.
Maggie Tomasek is the Social Media & PR Specialist at Alliant, an award-winning digital credit union. Find out more about Alliant at myalliant.com/freelancersunion.