Getting a mortgage when you’re a freelancer

My days as a W-2 employee ended when I became a real estate agent and joined the ranks of the 1099 crowd. And after the financial world imploded in 2008, it became much, much more difficult for those of us who count ourselves as self-employed to get a mortgage, either for a purchase or a refinance. As the economy has stalled, slowed, or caved in, depending on whom you ask, freelancing is the new normal for many Americans.

So, is it even worth applying for a loan if you’re not a 9-to-5er? Yes, provided you meet a few criteria.

A recent New York Times article offered some helpful tips for freelancers. First of all:

If you earn most of your income on 1099s, brace yourself for extra preparation, paperwork and discussion of your financial picture when applying for a mortgage. Dale Robyn Siegel, a mortgage broker in Harrison, N.Y., and the author of “The New Rules for Mortgages†(Alpha, 2009), says independent contractors will need to show that their income is stable and increasing. For some people, that may mean declaring all their income on their tax returns, and not, say, carrying anything over to the next year, even if it means paying more taxes.

In other words, be prepared to deduct less than you normally would. Yes, keep that adjusted income as high as possible so you’re likely to qualify for a loan.

A few more tips, from Sara Horowitz, executive director of Brooklyn-based Freelancers Union:

¶Pay off other debts, including those on credit cards, Ms. Horowitz says, and build a cash reserve, if possible.

¶Pinpoint the source of the down payment. If it’s a gift from Grandma, take along an account statement that shows it’s sitting there awaiting your purchase. If you’re borrowing from your 401(k), take those statements along, too.

¶Prepare for a harder look. Gather tax returns over the last three years. If your income jumped last year, expect to answer questions on why — and whether it will continue, Ms. Siegel said. Lenders may ask for extra documentation and information. If your income declined last year because you started work on, say, a master’s degree, or traveled for three months to South America, volunteer that information.

It’s definitely do-able to get a loan if you’re a freelancer. But you’ll have to show lots and lots of paperwork, show consistent income, and have a paper trail of your funds that would be the envy of Little Red Riding Hood. Good luck!