The past couple of weeks have been pretty hectic for me: my husband and I bought a house and moved into it. I’m still a little surprised that we managed it. After all, I’m a freelancer — a situation that causes many mortgage lenders to break out into hives. Just because my income can vary, the rules seem to change entirely.
However, we did get our mortgage and our house — and I came out of the experience with a few pieces of advice for freelancers ready to buy a home.
It’s All About Income Taxes
If you’re looking for a traditional mortgage, you must have at least two years worth of income tax returns showing at least your current income level. If you’ve made the switch to freelancing full-time in the last two years and don’t have income tax returns demonstrating how much you’re making, many lenders will essentially ignore your income. If you have a spouse who can manage the mortgage payment on his or her own, that’s not a big deal, but otherwise you are going to have to explore other options. I’ve also heard of freelancers taking part-time employment temporarily and having similar issues.
An FHA mortgage offers an alternative. Because the requirements have more flexibility, lenders who offer FHA mortgages are more willing to look at your current invoices and contracts to determine what your income really is. You’ll need a Year-To-Date report for your business as well as any supporting documents that the underwriter asks for. I was able to use a copy of my current outstanding invoices and list the projects that I already have lined up through the end of the year, along with providing a copy of my bank statement (I have a separate business checking account).
Think Ahead For A Home Office
Most freelance writers work from home. That means that making a dedicated home office area a priority during the hunt for a new home makes sense. The specifics of what you need may vary, but make sure you get what you need. As a bonus, it’s important to remember that if you have an area of your house used only for your freelance writing business, you can write off a portion of your utility bills and even your mortgage payments as a business expense.
Talk To A Tax Professional
Buying a house can make a big difference in your tax bill — even more so if you’re used to paying those quarterly estimated payments to the IRS. However, I would definitely recommend talking to your CPA or tax professional to see just how much you can save. My CPA was able to point out that not only would we qualify for this year’s first-time home buyer credit, but we’d also save a ton of money on our income taxes by deducting the interest we’re paying on the mortgage. We’ll actually have more money available after tax season by buying a house.