On top of the already tough path to homeownership in terms of managing student debt and a small inventory of affordable homes, an increasingly gig-based job market is just another hurdle millennials are facing. According to a 2018 NPR/Marist poll, one in five jobs in America is held by a contractor or freelancer. By 2028, that number could jump to one in two. Many self-employed people are finding it hard to secure a mortgage—even if their finances are otherwise healthy. Because lenders see freelancers and contract workers as not having a stable paycheck, the banks often move the goal posts in terms of required assets. And with an increase in self-employed workers, some are finding that the mortgage industry is still trying to manage risk with what some consider outdated requirements that don't mirror the current realities of the job market.
For mortgage qualification purposes, lenders want you to show as much income as you can, and for the self-employed, lenders operate from the bottom line of tax returns. However, this amount is usually lower for contract employees and freelancers, since they're eligible for certain tax deductions. Unfortunately, for income tax purposes the CPA's that usually work with the self-employed want to write off as much as they can, thus lowering that bottom line. One fix to this is to lay off those tax deductions—at least until you've moved into your new home.
Generally, the self-employed need to start preparing for homeownership earlier than those with a salary. Mortgage lenders in most states ask for two years of tax returns as proof of income. Because of this, working with a mortgage lender and accountant during those two years with homeownership in mind is important. This way, you increase your chances of qualifying once you apply.
And if you're so lucky as to be applying for a mortgage with a traditionally-employed partner or spouse? Consider talking to your lender about using their income (if they make enough) when applying. It's actually wise advice to budget a mortgage off of one partner's income—whether or not you're self-employed—to make sure you're not buying more than you can afford.
And with no signs that the mortgage industry is going to change any time soon and make it easier for the new workforce, unfortunately waiting may be your only option.