When my husband (then fiancé) and I began preparing to purchase our first home, I was a burden.
I know what you’re thinking — my writing career as a freelancer simply must not have been generating enough money to allow me to contribute, and I needed to ride on the coattails of my fiancé’s full-time job and steady paycheck to get the home of my dreams.
Given the reputation of a freelancer’s income, I don’t blame you. And having started on this new career just months before house hunting, I actually was a little strapped for cash.
However, it wasn’t my uncertain income that excluded me from the mortgage-qualifying round. Despite my limited pennies, I was more than willing to be an equal partner in the house-buying process.
The bank? They had different ideas — ideas I didn’t even know existed until I was in the thick of it all. They told me my income would not be considered when pre-approving us for a mortgage loan amount. Instead, the loan would be based on my fiancé’s income alone.
This came as a surprise, to say the least. So I’ve made it my mission to spread the word to others who might find themselves in the same boat. Let’s break this down, shall we?
What Freelancers Need to Know
When it comes to mortgage loans, there’s a special exception for freelancers, business owners and even real estate agents — basically, it’s a rule for people who are self-employed with a sporadic income.
So, what exactly is this rule? Well, the bank told me I needed two full years of freelancing income history for them to consider for our loan amount. (Shopping for home loans? Be sure to check your credit first. You can view two of your free credit scores, with updates every two weeks, on Credit.com.)
Be warned: These specific restrictions might vary from bank to bank, so you’ll want to talk to your own lender to determine what you need.
The general rule is that you’ll need to share 24 months’ worth of income history in the form of your personal and business tax returns. They average those two years to get a general idea of how much you make during a typical year, which they can then use to determine what size loan you could realistically handle. (You can see how much house you can afford here.)
Since I had only been freelancing for a handful of months, I had next-to-no information to share with them. My business was just getting off the ground — I barely had two months of income to report, let alone two full years.
So we were left with a choice: Either we could wait for two years until I had built up a solid enough income history as a freelancer for them to consider, or we could qualify for a loan using just my husband’s income.
The latter option was a little demoralizing. I was making money, so why couldn’t I be an active part of the purchasing process? Why was I being punished by having to take a backseat and watch my fiancé sign his name on that pile of paperwork? Starting my own business as a freelancer was a scary enough leap without being made to feel like a lesser half of our partnership.
However, it didn’t take me long to begin to understand where the bank was coming from. It’s a risk to lend money to a freelancer — someone who might make $7,000 one month and $700 the next. But just because I could understand it, didn’t mean I liked it.
So my fiancé and I worked out an arrangement so I could still feel like I was involved in our home purchase. I wrote him a check to contribute to our down payment, and we continued to shuffle money around between the two of us to cover the mortgage and other living expenses until we were married and shared joint accounts.
It was a bit of a roundabout way to involve me in the process, and it still had its frustrating moments.
As a freelancer, I still work full time — just not in the way a bank can calculate. But in the end, it was actually a good thing. The fact that we received our loan amount after reporting only my husband’s income means we took on a loan and bought a house priced well within our budget.
While the process was far from painless, knowing we’ll never be house poor? Well, that’s priceless.