Being a freelancer can be incredibly rewarding, but it comes with its own set of challenges because its obscurity means that many institutions don’t know how to evaluate you. This is particularly common when you’re applying for a bank loan or a mortgage. Traditionally the bank would look at your income and use it to justify how much they could give you while staying within their decided level of risk. But with uneven income, the bank worries that you might struggle to make regular payments.
Increasing Your Monthly Income
Although not easy, the best way to increase your chances of being accepted for a loan or a mortgage is to increase the amount that you earn. Many freelancers work far fewer hours than they could each month because they decide to freelance for the flexibility and freedom, but if you need to get approved for a loan, it’s often worthwhile to increase your hours and therefore your income.
Freelancers such as the writers at WordAgents aren’t the only people who have an irregular income. Those in entertainment like actors and singers often experience the same irregularity, but because they earn a significant income they can more easily get approved. While you’re unlikely to start matching Cher’s monthly income, by increasing your own you can decrease the risk for the bank and improve your chances of being accepted for the loan.
Show Year Over Year Increase
Although you have an irregularity in your income which can scare a bank, if you can show them that your income has steadily increased over the years you might persuade them to take a chance. Their primary worry is that you won’t be able to meet the interest payments, but by showing that your career is spiralling up rather than down, they are more likely to approve your loan. To do this, you should ideally split your personal and business income and expenditure into separate bank accounts so that they can easily see how much you earn before you start using tax deductions to lower it artificially.
Save a Sizeable Down Payment
If after these steps you’re still struggling to get accepted, you might consider taking some time to save up a more sizeable down payment. This is particularly important if you’re trying to get a mortgage for a new house. By increasing your down payment, you can reduce the amount which you have to loan, which reduces the risk for the bank drastically because the interest payments will represent a much smaller percentage of your monthly income.
