My First Car Loan

Freelance work has become a viable alternative to both regular employment and traditional self-employment. As a freelancer, you work as a contractor for one or more companies, or you may build and manage your own client base. When it comes time to buy your first home, though, you may run into a few extra challenges. This is because banks sometimes see the self-employed, and especially freelancers, as higher risk. The following tips can help you navigate the challenges and get a home loan.

Tip #1: Keep detailed records

One of the greatest challenges is proving your income. The most obvious tool used by most mortgage companies is your tax return, so be aggressive in reporting every bit of income you bring in. You should also keep every billing statement and invoice you send out and mark them as paid. Copies of the payment method, whether a charge statement or a canceled check, can also help with proof of income.

Tip #2: Separate your business from daily life

Many freelancers are tempted to work as sole proprietors and take few steps to separate their personal and business financial life. This can make it difficult to prove that your business is "real" employment to a loan underwriter. Take steps from the beginning to present yourself as a professional. Although remaining a sole proprietor is acceptable, you may also want to look into the benefits of registering your business as an LLC (limited liability corporation). You should also set up separate business checking and charge accounts. Pay yourself from these accounts at regular intervals using the payroll method of your choice.

Tip #3: Keep your credit spotless

While good credit is helpful for anyone looking for a mortgage, it is especially necessary if you are a freelancer. You want to mitigate as many risk factors for the lender as possible. This means avoiding revolving credit, like credit cards, unless the credit is paid off monthly. Also, minimize fixed loans, such as car loans, and never miss or be late on a payment. Check your credit reports regularly and contest any information that isn't correct.

Tip #4: Save up a large down payment

Lenders are more likely to issue a loan—and at a good rate—to borrowers that show regular income, that show fiscal responsibility, and that have a larger down payment. The simple process of saving up the down payment further proves financial responsibility to the lender and underwriters. While it can be possible to buy a home with little or no money down, as a freelancer you should aim for a 20 percent down if possible. This is the amount needed to avoid PMI (private mortgage insurance), so it is generally used as a standard for a low-risk borrower.

For more help, contact a mortgage company in your area.