Bank like a financial pro with the Alliant mobile app. Make payments, deposit checks, manage cards and so much more.
Renovate your kitchen, pay off high-interest debt, or have access to emergency funds when you need it with an Alliant Home Equity Line of Credit.
Browse new and used vehicle inventory, and qualify for a rate discount when you buy!81
Separate each of your savings goals into an Alliant Supplemental Savings Account so you can visualize your progress.
Discover how an award-winning banking experience could be your next little win.
Logo courtesy of CNBC
By Amanda Hargrove
From setting their own hours to choosing what projects to take on, self-employed individuals enjoy many perks—but a simple mortgage process is not one of them. Whether they are independent contractors juggling multiple gigs or own a small business, your self-employed buyers need to jump through more hoops than W2 employees when it comes to securing a mortgage.
Self-employment has grown in prevalence in recent years, particularly with the rise of the gig economy. Roughly 9.3 million Americans were self-employed by the end of 2020, down slightly from their ranks before COVID-19 struck, according to U.S. Bureau of Labor Statistics data.
Freelancers have been more vulnerable than full-time employees to pandemic-related closures or lost business. Still, self-employed workers likely comprise a growing proportion of your potential buyers, so it may useful to know what they may expect in the mortgage process.
The number one issue for self-employed buyers is that it's more complicated to prove a steady income to lenders. Without a simple W2 to present, the mortgage application process generally takes longer and requires more footwork.
Following are key ways you can support self-employed clients as they hunt not only for their next home, but for the mortgage they'll need to walk away with the keys.
First and foremost, potential borrowers should know that the process may take longer than they expect. Even more so than with your traditionally employed clients, encourage self-employed clients to get pre-qualified and establish a relationship with a trusted lender early in the process.
It can be more complicated for freelancers and independent contractors to land on the optimal amount of mortgage debt to shoulder, because their monthly incomes are more likely to fluctuate than W2 employee clients. Online calculators are a good place to start, but also encourage clients to analyze their finances more carefully to avert house-rich/cash poor scenarios.
The mortgage paper trail will be longer for your self-employed clients, beginning with credit scores and two years of business and personal tax returns—complete with 1040s and schedules—and continuing on to include detailed profit-loss statements for the current year to date. Lenders typically also require balance sheets, loans and debts, savings and investments, other revenue streams, and work history.
Though writing off expenses can help your client at tax time, this practice won't aid their mortgage applications. Their taxable income, rather than total income, will be considered the qualifying income. So these clients should evaluate debt-to-income ratio not on total income, but on the net they've reported after write-offs.
You probably already know that the days of 20%-or-bust down payments are over. But for self-employed clients, settling on the down payment plan may be more complex. If your client can pull more from savings or other investments, it may be in their interest to ramp up the down payment.
Self-employment can require a bit more paperwork when applying for a mortgage, but the due diligence will feel well worth it when your client receives the keys to their dream home.
Sign up for our monthly newsletter to help you stay at the top of your financial game.
Welcome! You'll now have financial tips sent to you directly each month.
You are leaving Alliant’s website to enter a website hosted by an organization separate from Alliant Credit Union. The products and services on this website are being offered through LPL Financial or its affiliates, which are separate entities from, and not affiliates of, Alliant Credit Union.The privacy and security policies of the site may differ from those of Alliant Credit Union.
You are leaving an Alliant Credit Union website and are about to enter a website operated by a third-party, independent from Alliant Credit Union. Alliant Credit Union does not manage the operation or content of the website you are about to enter. Alliant Credit Union is not responsible for the content and does not provide any products or services at this third-party website. The privacy and security policies of the site may differ from those of Alliant Credit Union.