October 26, 2018

Self-Employed? Learn How You Can Get a Mortgage

You’ve decided you’re ready to purchase a home, now it’s time to apply for a mortgage. Starting the loan application process can be overwhelming, but even more so for borrowers who are self–employed.

Thanks to smart phones, digital apps and companies like Uber and Airbnb, an increasing number of Americans, particularly millennials, earn their living in the sharing or gig economy by providing on–demand services. These people mostly work for themselves and are expanding the nation's already sizable self–employed workforce. And like salaried employees, on–demand workers want to buy homes.

Unfortunately, many self–employed individuals hear from family and friends that it’s challenging to get a mortgage because it’s hard for lenders to calculate your income. However, there’s good news. If you’re self–employed and your lender works with Freddie Mac, they now have the ability to submit your loan through Loan Product Advisor®, our automated underwriting system which is now integrated with LoanBeam. This integration gives you and your lender several advantages, including an automated review of the accuracy of qualifying income, eliminating the need to chase down unnecessary documents that support residual/excess income.

Whether you’re self–employed or not, lenders will evaluate the “four Cs” when deciding to make a loan:

  • Capacity to pay back the loan. Lenders look at your income, employment history, savings, and monthly debt payments, such as credit card charges and other financial obligations, to make sure that you have the means to take on a mortgage comfortably.
  • Capital. Lenders consider your readily available money and savings plus investments, properties, and other assets that you could sell fairly quickly for cash. Having these reserves proves that you can manage your money and have funds, in addition to your income, to pay the mortgage.
  • Collateral. Lenders take into account the value of the property and other possessions that you're pledging as security against the loan.
  • Credit. Lenders check your credit score and history to assess your record of paying bills and other debts on time. (Even if you don't plan to buy a home now, it's always a good idea to build and maintain strong credit. Landlords often check it to make sure that you can pay the rent. It's also important if you want to apply for a mortgage or other credit line in the future, such as a student loan, car loan, or credit card.)

Our collaboration with LoanBeam is just one example of a broader effort underway at Freddie Mac to build a better housing finance system and help lenders meet the unique needs of all borrowers.

For more information on the homebuying process, visit My Home by Freddie Mac.