Qualifying for a mortgage in the gig economy

The gig economy is thriving. So why hasn't the mortgage industry caught up?

First, what is the gig economy?

You may be one of more than 50 million freelance workers in the United States. Perhaps you provide services through Uber, Airbnb or similar apps. If so, you've participated in the gig economy as a temporary worker.

The gig economy is simply a departure from the traditional employer-employee relationship. It reflects the fact that more and more people provide labor as independent contractors rather than working for one company. This type of arrangement has advantages and disadvantages. Typically, it provides terrific flexibility and lousy benefits. For better or worse, freelance careers are increasingly common.

Mortgage loans for temporary workers can be obtained, but it isn't often easy.

Get a loan without a job: tough -- but not impossible

When you apply for a mortgage, a lender is going to want to know who your employer is, how long you've worked there and your monthly income. All straightforward questions if you're a traditional employee.

Freelancers, on the other hand, often begin their answers to these questions by saying "It's complicated…." The issue isn't "Can you buy a house if you are unemployed?" It's just that there may be multiple "jobs" providing income in an irregular stream.

Though they may be very successful, workers in the gig economy don't have a full-time employer, may work a series of different jobs from month to month or even day to day, and have variable incomes. In short, they lack some of the key ingredients lenders tend to look for on a mortgage application.

Fannie Mae and Freddie Mac, mortgage finance companies that play a huge role in setting the standards for the industry, recognize the mismatch between the evolving gig economy and traditional mortgage requirements. They've signaled an intent to update their standards to more accurately account for gig economy incomes, but until changes are made, qualifying for a mortgage in the gig economy may be challenging.

How to get a mortgage without a full-time permanent job

Don't assume that the disadvantage gig economy workers have in qualifying for a mortgage is insurmountable. There are at least nine things you can do to overcome challenges associated with mortgage loans for temporary workers:

9 ways to get a loan without a job (full-time)

1. Get part-time employment. Some members of the gig economy are on an employer's payroll on a part-time rather than full-time basis. In terms of listing your employer and income, this should fit fairly neatly into the traditional application process -- as long as that part-time income is sufficient to qualify for the mortgage you're seeking.
2. Demonstrate income stability. If you don't have a regular employer, the goal should be to show that you have been able to generate a fairly stable income through the gig economy. The longer you have been doing it, the easier this should be.
3. Show two years' freelance or gig economy experience. Many people wonder, "How long do you have to be on the job to qualify for a mortgage?" Lenders typically want two years of employment history. In the absence of that, being able to show you've been able to make a go of it as a freelancer for at least two years is the next best thing.
4. Diversify your income. Freelancers often describe their workflow as "feast or famine." If you can cultivate more than one source of regular work, it can help smooth out some of the ups and downs and make your income appear more stable to a potential lender.
5. Pay your taxes! Um, let's be honest about something. Some people in the gig economy work under the table to avoid taxes. When it comes to qualifying for a mortgage though, one of the problems with working under the table is that in the absence of regular paychecks, lenders are likely to lean heavily on your tax returns for income verification.
6. Boost net income. If you have been diligently declaring your freelance income, be aware that what lenders are most interested in is net income. So, if you've been deducting work expenses on your tax returns, this reduces the net income lenders can use to assess whether or not you qualify for a mortgage loan.
7. Make your credit record shine. Lenders make judgements based on a number of different criteria. If you don't have what they are looking for in terms of a traditional employment relationship, you had better not have credit problems on top of that. A clean credit record can show that you've been able to consistently meet your financial obligations while working in the gig economy.
8. Build a healthy down payment. One way lenders assess risk is via a loan-to-value ratio. The bigger your down payment, the lower the ratio this will be and the less risky the lender will consider your loan. A healthy down payment can also demonstrate your ability to thrive financially in the gig economy.
9. Get pre-qualified or pre-approved. Going through a pre-qualification or pre-approval process before you bid on a house can help you identify any qualification trouble spots up front. It can also ease sellers' concerns when deciding between competing bids.

Acceptance of gig economy income for mortgage approval is evolving, and some lenders are more ahead of the curve than others. As you start looking for a lender, ask upfront whether they have written loans for freelancers and what their requirements are.

Ensuring upfront that you're talking to a lender who is open to making mortgage loans based on gig economy income should save you some time in the long run -- and as any freelancer knows, time is money.