Gig economy workers emerged in 2009. The principles behind the gig economy were based on lifestyle choices; changing labor viewpoints and adapting new methods of earning income. For most work positions (gigs) became temporary, developed into self-employment or ongoing independent contract agreements.
What hasn’t changed is the desire to own a home – proving the traditional home buying prerequisites for financial stability remains a challenge. According to recent polls, gig participants believe buying a home is difficult. Studies report average incomes of $50,0000 annually with the National Housing Market report showing a positive outlook as gig incomes are expected to increase in 2018.1
In May of 2018, the Federal National Mortgage Association, better known as Fannie Mae acknowledged the challenges confronting gig homebuyers.2 As the current cost of housing continues to increase, Fannie Mae is looking for ways to make home buying affordable and the qualifying processes more obtainable. Right now, the future looks optimistic with more than 75 percent of the gig workers eager to buy a home.3
Home buying Challenges for Gig Economy Workers
Home buying has never been an easy task for any generation, but like the past – qualifying income under the current mortgage guidelines is possible with the right assistance. First-time gig buyers are still concerned with affordable home prices, down payments and favorable interest rates. Addressing these issues to help diminish a lender’s concern of risk are loan-to-value ratios.
- A more substantial down payment lowers the ratio, increasing the approval percentages.
- Established credit demonstrates financial responsibility for access to lower loan costs and higher buying limits.
Some mortgage lenders are ahead of the curve following Fannie Mae’s lead in surveying the standards for the mortgage industry. Bottom line, it makes sense for gig workers to look for assistance from financiers with loan options that fit the earner’s lifestyle.
If you are in the buyers’ market, take the time to ask about the requirements for mortgage qualifications. Lenders are looking for at least two to three years of documented income and prospects of continued income into the future.
- Lenders rely on copies of bank statements and tax returns for income verifications. Be sure to claim all of your earnings and pay your taxes.
- Gig workers need to understand the difference between gross versus net income. Financiers use net income when qualifying for a mortgage loan. Take some precautions with excessive expenses as means of sidestepping taxes. It yields a lower net income.
Tell your story – show your gig work history – take a realistic perspective on gig earnings. Provide verifications of all income sources. It’s evidence you have consistently generated a steady flow of income.
- Share how the income is earned as a freelancer or independent through gig employments.
- Explain how you cultivate regular work to balance the economic ups and downs of the trend.
Being prepared and knowing what the lender is going to ask will put you ahead of the crowd. It’s an advantage that will save costly time, frustration and expedite the closure of your new home.
Money Management and Credit
Your selection of lender and money management does make a difference for approval. Home buying finance is built on trust and performance. The industry has already recognized the disparity between an evolving gig economy and traditional mortgage conditions.
Create a financial plan with a backup plan in place – for now, in between gigs and the future. If you’re in the process of planning to buy a home, set aside a small portion of income each month for this long-term investment.
The gig generation have embraced the idea of flexibility and freedom. It’s a significant cultural shift – triggering the need to modernize the financial mortgage methods as industry announcements are in the midst of altering the market’s practices.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.