There’s no doubt about it: It’s getting more difficult to qualify for a loan, particularly if you are a freelancer. Due to a slowing housing market and an increasing number of defaults, many lenders are now tightening their requirements to qualify for a loan.
Historically, lenders have always preferred to have borrowers with steady paychecks versus those whose income can vary. It wasn’t until the last few years that lenders, with a booming real estate market and historically low interest rates, starting offering attractive interest rates on stated income or “no doc” loans. Well, those days of easy money are seemingly behind us.
What then, is a successful freelancer supposed to do if they are looking for a new loan in today’s market? Before you even apply for a loan, be sure to take the following steps.
First, be aware of what your FICO score is. I’ve previously written about how to improve your FICO score but, needless to say, the higher your score, the more likely you are to get favorable terms on your loan, even if you are a freelancer. Make sure that you have a current copy of your credit report from all three credit bureaus — Equifax, Experian and TransUnion — and be sure that there are no inaccuracies that could negatively affect your credit score. If there are any inaccuracies, be sure to challenge them and get them corrected immediately.
Second, make sure that you maintain an adequate amount of liquid assets on hand. If you have substantial liquid reserves such as savings accounts, CDs, brokerage accounts and even IRAs and 401(k)’s, a bank or other lender will look upon you more favorably and shows that you are a more stable risk than someone without those assets.
Finally, work with a reputable independent mortgage broker or credit unions that specialize in helping freelancers get financing. In addition, your credit union is often an excellent source as, again, they are well versed in the needs of their freelance clients. Most importantly, whenever possible, get a referral from someone you trust versus going to the yellow pages or the Internet. While the mortgage person at your local bank may be very good and honest, they are often limited to offering loans only from their own bank. An independent mortgage broker, however, will be able to shop your loan to many sources to provide you with the best loan for your needs.
The tightening of credit markets does not mean that loans to freelancers will completely dry up. What it does mean is that you, as a freelancer, will have to work to paint a better picture to prospective lenders so that you can not only qualify, but get the best rate possible.
Rob Jupille is president of RTJ Financial Management, a fee-only financial planning firm. He can be reached by email at [email protected] or his office at (310) 587-3370.
Written by Rob Jupille