Congratulations, you are ready to start looking for the perfect home and are prepared to begin the pre-approval process with a mortgage lender. This is a big financial step! Securing a home loan may prove itself a challenge for some applicants. Loan offers can vary greatly between lenders as attitudes towards independent contractors differ, specifically self-employed Uber drivers. Their reason? Not understanding or feeling comfortable with the gig economy. Uber driver mortgage approval is possible, but it can be an uphill battle.
According to the MBO Partners 2017 report, there are 41 million people ages 21 and above that are now self-employed. The only difference is that you work in a car as an Uber driver instead of behind a desk at a 9 to 5 job. As an independent worker, you do not have to give up the freedom of being your own boss to achieve the American dream.
Read on to learn how a mortgage advisor can help navigate the application process as it differs for those who are self-employed when compared to a traditional employee. See what documentation you need to have ready when starting the process and how to increase your chances of being approved for your next home.
Do lenders dislike gig economy workers?
As a self-employed worker, your income fluctuates. This causes Americans who work within the gig economy to face hurdles when applying for a mortgage. Lenders do not dislike gig workers outright, but they have to be careful before approving their loan.
For this reason, you may need to submit two years’ worth of self-employment income to indicate consistent work. Be ready to show your lender at least two years of tax returns, steady income, a list of existing debts and assets. As a business owner, be advised that you may also need to provide profit and loss statements for the past few years of your company.
What Do Mortgage Lenders Check?
Regardless if you are applying as an independent contractor or a traditional homeowner, managing your debt is an essential part of the process. A lender will want to make sure your income can keep up with your monthly expenses. Your goal debt should be around 36% of your income but try not to exceed 43% of your earrings.
Your Credit Score
Do not discount your credit score! It does matter when applying for a home loan. This report is used to assess the risk of lending you the funds to purchase your new home. Additionally, it provides insight into the mortgage companies if you are responsible for your debt.
Late payments and repossessions will reflect negatively. Additionally, having a high credit utilization ratio indicates to the mortgage company that you are financing many of your purchases. While this is not bad, it can be a sign that you are living above your means.
Bottom line — you want to maintain a high credit score. This will give you a better advantage of having your application approved and will provide lower interest rates.
The Gig Economy
Your work as an Uber driver is part of a growing gig economy. Freelancers want more opportunity for a flexible workspace and more control of their daily schedules. When it comes to current mortgage approval, the underwriting process is not built for those in the self-employed industry. Capitol Hill is discussing how to make changes to the mortgage application so that it is fair to those within the contract field. However, keep in mind that lenders may be hesitant to lend to gig workers.
How Uber Drivers Can Qualify for a Mortgage
Whether you are a traditional employee or an Uber driver, the information needed for your loan application request does not differ based on your occupation. Mortgage companies are focused on three key points:
- Your ability to pay the loan
- The value of the home
- Your credit history
The Ability to Repay
For Uber drivers or anyone who works within the gig economy, this area is where freelancers typically need to complete some extra paperwork during the process. All is not lost, as there are mortgage lenders who have worked with contract workers in the past. They can make the appropriate adjustments to their approval model.
Have the following documents ready when you start the mortgage process:
- Business accounts (2 statements of each)
- SA302 year-end tax calculation
- Credit Scoring Checks
- Proof of regular stable income
The mortgage company that you choose should provide a list of the needed documentation to complete your application. As an Uber driver, your paychecks can fluctuate from how often you work to when you get paid. It is important to take the time and educate your advisor on this cycle when you present your proof of income. That way, they can make the best case during the mortgage application process.
Get a Mortgage Advisor Specialist
This person can walk you through the mortgage process and help identify the right lender that will fit your needs. As you check items off your list during the application process, your advisor will help you to find the lender who can provide you the affordable terms that you need as an Uber driver. Do not be discouraged if they ask you to wait a few months or require documents; they are trying to help you get a home loan.
Incorporating Your Business
One thing to consider is incorporating your business into a limited liability corporation (LLC). An estimated 4 in 10 self-employed freelancers are an LLC, while 6 in 10 remain unincorporated. Instead, these workers are either part of a general partnership with other individuals or stay as an unincorporated sole proprietor.
By having a separate entity, you can show the lender your earnings rather than going through the confusing process of proving your income as a sole proprietor. Additionally, incorporating can assure lenders that you will pay your loan payment even if you ran into financial trouble as an Uber driver. It adds a touch of professionalism that lenders will like.
Length of Employment
How long have you been driving for Uber? The length of your employment is vital when applying for a mortgage. Some lenders can request at least 24 months of consistent self-employment before they approve your application. Other organizations, like Fannie Mae, may require only 12 months of statements. However, there may be some conditions you must meet to get this 12-month option. Some firms may want previous homeowner experience or proof that your rideshare income is not lower than your last job. These are just some of the challenges you face when it comes to getting mortgages for Uber drivers.
If You Are Denied
Connect with your mortgage advisor to find out the reason behind the denial; the lender should provide the issues with your application. Problems with the application can include items like the length that you have worked as an Uber driver to your down payment. See if you can find a family member or friend to help you cosign the mortgage loan for you.
Are there mortgage lenders for contract employees?
Some top lenders offer non-traditional mortgages for gig workers. As a contract employer, you may need to take extra steps to receive your mortgage approval. Be ready for additional paperwork as some lenders may have difficulty assessing your income.
Here are our top four mortgage lenders for Uber drivers:
Considered one of the biggest lenders in the United States, this company has an easy online mortgage tailored for the self-employed. Due to its size, this organization offers a full array of products such as conventional loans, jumbo loans, refinancing, and government-backed FHA. Quicken Loans has a streamlined application process, freeing up your time to work on other things.
If you have worked as an Uber driver for a considerable length of time and have a stable income, this mortgage company is considered the best for self-employed borrowers. Better.com has lower rates than its competitors and can offer you a mortgage with no commissions and no origination fees.
J.G Wentworth is a direct lender for rideshare drivers. You can submit your paperwork through the company’s online portal, and they provide e-signature during closing. The organization has a strong reputation for delivering exceptional customer service. Additionally, J.G. Wentworth offers loans for customers with lower credit like a VA loan or FHA loan.
Depending on your credit score, check out the mortgage products offered by Lending Tree. Once you submit your application, you can view quotes from multiple lenders to compare plans. The company makes an assertive effort to connect their clients to the products with the lowest rates.
Your Next Steps
Buying a home is one of the largest financial decisions you will make, so it is wise to take the time to compare lenders and complete your paperwork correctly. As an Uber driver who is part of the gig economy, allocate extra weeks for you to collect the correct documentation. Regardless of your current financial circumstances, buying a home takes time, organization, and patience. By preparing yourself in advance and researching Uber driver mortgage options, you will save time and avoid hassle.
I have been a freelance digital marketer since 2014. When I am not helping clients generate more leads or market their services, I explore the world, listen to podcasts, and dream big.