Q: I am a freelancer, and I want to fulfill my dream of buying my first home. Will they — that is, everyone involved in the home-buying process — take a chance on me? I don’t have much on paper.
A: Once upon a time, in a mortgage market far, far away, there was a loan called "stated income." Nowadays, people call it a "liar’s loan" because lots of folks abused it by just fabricating an income that they knew would qualify them for the lovely manse they really wanted when their real income would get them only a plain tract home. There was, however, a legitimate use for stated-income loans at the time, and one of those uses was to allow freelance and commissioned workers to qualify for a loan without having to fully document their income with paycheck stubs, the way a salaried employee would.
Mindset Management
Long story short — the stated-income days are long gone. We live in a full-documentation world. The mortgage industry will extend you home-purchasing power commensurate with the income you show "on paper," meaning your last two years’ tax returns, bank account and other asset statements, and your documented credit history.
That doesn’t mean, however, that you will not be taken seriously by real estate professionals if you do not show up with oodles of dough or perfect credit. What you need is to find a Realtor and mortgage broker who are willing and able to work with you over time, as you prepare yourself and your qualifications to buy a home. You need a team of professionals who will give you a little bit of time now to (1) assess your current purchasing power, if any, based on the present state of your credit, income and assets; (2) determine whether it’s feasible for you to purchase a home now; and, if not, (3) help you create an action plan you can work on over time to provide your best face to the mortgage world.
Need-to-Knows and Action Plan
Where can you find such a real estate fairy godmother (or father)? By referral — ask around amongst your family members, colleagues and friends to try to find folks who really loved their Realtor and/or mortgage broker and would swear by them.
If you really have a hard time finding someone by referral, I’d recommend two things: (1) attend some local first-time homebuyer seminars conducted by Realtors, and see if you find one that strikes you as being your "flavor" of person, and/or (2) visit the Real Estate Buyer’s Agent Council Web site at www.rebac.net and use the Find a Buyer’s Agent directory to find agents who have the training, experience (and patience!) to help you through this process.
If you find a great Realtor who is willing to help you, ask him or her for a mortgage broker referral, and vice versa — they need to work together to turn a mortgage approval amount into a realistic understanding of what kind of place you could buy on today’s market, and whether that would work for you.
Once you have your team in place, in the event you don’t currently qualify for a mortgage large enough to buy the right home for you, ask your mortgage broker to help you get some clarity around what specific steps you can take to make your credit, income and assets more attractive to lenders — and in what order you should take them. It can be tough for a layperson to accurately gauge how to most powerfully sequence and prioritize paying down debt vs. saving up for a down payment, and so forth. That’s where your mortgage broker’s expertise comes in, so take advantage of it!
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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