Freelancers have long gotten by without a salary. They offer their services to clients on a case-by-case basis, manage their revenue, pay their taxes, and strategize to ensure they have enough to get by. They refer to themselves as “self-employed.” A new classification of freelancers has emerged in the past decade, however: The “gig economy.” This refers to companies like Uber, Lyft, Airbnb, and other businesses that offer services provided by freelance workers. The only real difference is that these workers have a “boss” in the company they represent. Otherwise they set their own hours.
Is it really that different from being self-employed? Not really! That said, the question of qualifying for a mortgage as a “gig” employee is different than say, the question of getting a job as a self-employed accountant or computer developer. Income and the predictability of demand is one major reason.
So what can you do to qualify for a mortgage while working in the gig economy? Here are 4 major tips:
1. Pay Your Taxes…
Yes, we know that YOU pay your taxes…but the fact is that many workers within the gig economy do not! In fact, this is one of the not-so-secret benefits to working for a gig employer: Not being a full-time employee means that it’s easier for the employed to hide their earnings from the IRS.
This becomes a problem when you apply for a mortgage, however. Even if you have two years of experience with Uber or another gig employer, the lack of a consistent paycheck could potentially work against you. Brokers try to balance this out by putting more emphasis on the tax documents you provide. If your tax documentation reports an obviously low income total, they’ll know exactly what’s going on…but they won’t be able to do anything about it. This will crush your debt-to-income ratio.
2. …But Be Careful When Filing for Deductions!
It’s reasonable that any individual, including gig workers, would want to pay less on their taxes. Legally, self-employed people can take advantage of many deductions to lower their tax bill. If you’re looking to apply for a mortgage, you may want to think again!
Let’s say you’re an Uber driver. You can make deductions for the number of miles you drive as part of your job…an obvious bonus. One problem: When you use a deduction, this removes that revenue from your net income, which is what lenders look at when approving borrowers. You may have brought in $28,000 last year…but if you deducted $1,070 for miles driven, you only made $26,930 on paper.
3. Diversify Your Income
The biggest danger to gig employees is the way their monthly income can shift up and down, based on factors you don’t control. A Miami Lyft driver will not find as much demand during hurricane season as he will during Spring Break, and his income will probably reflect that. Any job that offers regular hours and paychecks will benefit your mortgage—both in terms of total income and stabilizing your income—even if that side job is part time. Many gig workers are already looking good on this front, as they entered the gig economy to help supplement their income. Keep it up!
4. The Same Tips Apply…Really Really!
No matter what background you come from, we offer these same tips to everyone: Maintain your credit score, minimize debt, and put down a healthy down payment. If you can do these three things, lenders are more willing to work around the inconsistency of your income. Is a gig job your second source of income? Put those extra earnings toward a down payment. Still owe money on the car you’re using for Uber? Step up your payments to get that debt off your record!
Those working in the gig economy can qualify for a mortgage, when they approach both their jobs and the loan application process with a firm strategy.