Table Of Contents

1. Introduction

2. Home Buying For Salaried Employees

  • Struggle 1: Using all your pay to qualify
  • Struggle 2: Explaining employment gaps
  • Struggle 3: Dealing with student debt 

3. Home Buying For Freelancers

  • Struggle 1: Having an inconsistent income
  • Struggle 2: Providing proof of income
  • Struggle 3: Establishing a strong credit history

4. Standard Loan Programs You Can Use

  • Conventional Loans
  • Federal Housing Administration (FHA) Loans
  • US Department of Agriculture (USDA) Loans
  • Department of Veteran Affairs (VA) Loans

5. The 10-Step Home Buying Process

  • Find A Real Estate Agent
  • Mortgage Pre-Approval
  • Buyer Consultation
  • Home Search
  • View Homes
  • Make An Offer To Purchase With Deposit
  • Home Inspection
  • Loan Underwriting, Appraisal, And Final Approval
  • Close On Your Home
  • Move In


Mortgage lenders are not risk-takers and with good reason. After all, the last thing they want is someone running away from their loan, so they base their decisions on security and predictability when assessing potential borrowers. For most lenders, job stability means working 40 hours weekly, receiving a fixed salary each month, and never between jobs.

But does that mean that salaried employees will have zero problems securing a mortgage? Not really. For instance, combining your base and overtime pay to qualify for better mortgage terms is not always an easy path to take. Moreover, it is not uncommon for workers to have employment gaps due to varying circumstances. Student debts can also hinder most people from getting the keys to the home they dream of.

Freelancers are even in a more complicated situation as employment gaps are a norm, not an exception. Furthermore, freelancers may find it challenging to build a robust credit history due to irregular income flows.

But never fear: securing a mortgage is possible, whether you’re a salaried employee or a freelancer. This guide outlines how you can overcome the common hurdles in purchasing your dream home.

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Home Buying For Salaried Employees

As a salaried employee, you will have an easier time securing a mortgage. You have a base income to present to lenders, which is a plus point in risk assessment. However, that alone does not guarantee lenders will approve your mortgage application.

Struggle 1: Using all your pay to qualify 

Your paycheck consists of two parts, the base salary and overtime pay. With careful planning, you can make every cent count when applying for a mortgage.

Base income
Base salary is the fixed amount of money you earn from your employer before the addition of any bonuses, overtime pay, or other extra compensation. It represents a stable income, which mortgage lenders heavily scrutinize to gauge your financial reliability.

When applying for a mortgage, the emphasis is on a stable and consistent income. Lenders are keen on seeing a steady employment history, typically favoring applicants with at least two years of stable income in the same field. Your base salary serves as a dependable indicator of your ability to manage the monthly mortgage payments. However, the specifics may vary slightly from one lender to another. It's advisable to have recent pay stubs, tax returns, and W-2 or 1099 forms ready to validate your earnings.

For new graduates entering the workforce, the landscape might seem a bit challenging, but it's certainly navigable. While you may not have the preferred two-year employment history, your offer letter can serve as a testament to your earning potential. This letter, coupled with a well-documented budget and a statement of your career prospects, can help paint a favorable picture for lenders. However, keep in mind, as a fresh graduate, you might encounter higher interest rates or stricter requirements due to the perceived risk tied to your rising professional status.

But there's more to your income story. If you’ve been earning overtime, this can further beef up your mortgage application.

Overtime pay
When applying for a mortgage, every bit of income counts, and that includes overtime pay. Overtime pay is the additional compensation for hours worked beyond the standard 40-hour work week, often calculated at a higher rate, usually one and a half times your regular hourly rate. Fortunately, lenders will consider your extra income in your application so you can secure better mortgage terms.

Likewise, lenders typically prefer to see a two-year history of consistent overtime earnings to consider it reliable. The logic here is straightforward – a steady history of overtime pay suggests it's a regular part of your earnings, not just an occasional windfall.. You’ll need to provide recent pay stubs and your last two years' W-2 or 1099 forms to validate your overtime earnings.

For new graduates, the challenge lies in the lack of a lengthy employment history. However, if you've landed a position where overtime is common and have started accumulating overtime pay, you can still leverage this to your advantage. While you may not meet the typical two-year history requirement, a letter from your employer confirming the likelihood of continued overtime, along with any overtime pay stubs you have, can help make your case.

Having explored both base salary and overtime pay, it’s time to piece the puzzle together.

Total income
Say, for instance, you currently work 40 hours weekly with a base pay of $20/hour. Over the last two years, you've been clocking in an additional 10 hours of overtime weekly at a rate of $30 per hour.

Assuming you have 24 months' worth of paystubs showing consistent extra pay, here's how your lender would calculate your total income:
Calculate your current base salary.
First, multiply your hourly rate by the number of guaranteed hours you work weekly. In the mentioned scenario, that would be:
$20 × 40 (hours) = $800 weekly.

Now, multiply that weekly income by 52 weeks to gauge your annual income:
$800 × 52 (weeks) = $41,600 yearly.

And finally, divide that number into 12 months.
$41,600 ÷ 12 (months) = Your base salary stands at $3,467/month.
Calculate your overtime pay in the past two years.
Multiply your overtime rate by the number of overtime hours you've worked weekly, and then by the number of weeks in a year:
$30 × 10 (hours) × 52 (weeks) = $15,600 yearly in overtime pay.

Now, divide that annual overtime figure by 12 months to find your monthly overtime income:
$15,600 ÷ 12 (months) =
Your overtime pay over the past two years averages $1,300/month.

To summarize:

  • Base salary: $3,467/month
  • Overtime: $1,300/month

    The total qualifying income the lender would use is $4,767/month. The inclusion of your overtime pay not only elevates your total income but substantially improves your standing with the lender. It will increase your chances of getting approved for a mortgage and snag you excellent terms.

How to use all your pay to qualify

The key here is to have an immaculate paper trail. Here are some tips on documenting your income:

  1. Keep all your paystubs, especially those you receive at the end of the year as they show the year's totals of all your income types.
  2. Obtain your W2s for the past two years.
  3.  As mentioned, request a letter from your employer attesting that your extra pay is a long-term arrangement. (Note: Many employers won't do this.)
  4. Write the lender a letter explaining why they should consider more of your income.
  5.  Provide the lender with a contact name and number for your HR department.
  6.  Find the final paystub and W2 from all your former employers in the past three years.

Struggle 2: Explaining employment gaps

It's not uncommon for salaried employees to have employment gaps. If you have had gaps in the past two years before your mortgage application, write the lender a letter explaining what you were doing at the time. Furthermore, you can make your application more attractive by providing proof that you made consistent rent or mortgage payments during your employment gaps.

The lender isn't prying – they just want assurance that you will have a consistent income to cover your mortgage payments. If possible, avoid changing employers before applying for a mortgage to save yourself the hassle. 

Struggle 3: Dealing with student debt

Student debt will affect your debt-to-income ratio or DTI, which is one of the critical factors lenders consider when you apply for a mortgage.

Most lenders want to see a DTI of 43% or less. To illustrate: if your gross monthly income is $5,000, you'll need to keep all your debt payments combined under $2,150 ($5,000 × 0.43). If you have $750 in debt payments each month, that means you can afford a $1,400 monthly mortgage.

The following are a few strategies to work around student loans and ultimately lower your debt-to-income ratio.

  • Pay off debts with the lowest balance first. Don't focus too much on your student loan balance. For instance, if your auto loan payments are high but you've nearly paid them off, get rid of them before applying for a mortgage. By paying off an account, you'll reduce your monthly payment obligations and improve your DTI ratio.
  • Refinance your student loans. Doing this allows you to lower your interest rate, extend your loan term, or obtain a combination of the two. That will cut your monthly budget for loan payments and improve your DTI ratio in the process.
  • Enroll in an income-based repayment plan. This enables you to lower your monthly student loan payments to align with your current income level. Such plans allow you to make payments as low as 10 to 15 percent of your monthly income and can ease some pressure on your budget.

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Home Buying For Freelancers

The situation of freelancers is a little more complex. Short contracts and variable income – this is the nature of freelancers' work. This doesn't mean you're having trouble maintaining work, but without context, a lender may view your career history negatively.

If you're a freelancer, add these steps to your game plan to get approved in no time. 

Struggle 1: Having an inconsistent income

Freelancers often experience fluctuations in their income due to the project-based nature of their work. Unlike traditional employees with a fixed monthly salary, freelancers might have months of lucrative earnings followed by quieter periods. This inconsistency can be a red flag for lenders who prefer a stable income stream. Outlined below are the steps you can take to overcome such a hurdle.

  • Create a robust financial cushion. Establishing a significant savings buffer can act as a financial cushion during leaner months, showcasing to lenders your financial prudence and ability to manage finances over time. This savings buffer could cover several months of living expenses, illustrating your readiness to handle any unforeseen financial challenges.

    Keeping this cushion in a separate savings account and gradually growing it over time can also reflect positively on your mortgage application.
  • Demonstrate a solid work history. A lengthy and stable work history within your freelance field can counterbalance income inconsistencies to some extent. By showcasing a steady clientele or long-term contracts over several years, you underline your professional stability and continuous demand for your services, which can instill confidence in potential lenders.

    Building a portfolio displaying consistent work engagements and client testimonials can also serve as a testament.
  • Utilize a Profit and Loss statement. Preparing a professional and comprehensive Profit and Loss (P&L) statement can provide a clear snapshot of your financial performance over time. By meticulously documenting your monthly income, expenses, and net profit, you give lenders an organized insight into your financial standing.

    Engage a certified accountant to ensure your P&L statement adheres to standard accounting practices, which can further enhance its credibility in the eyes of lenders.
  • Seek professional certification or licensing. Acquiring professional certifications or licenses relevant to your field can bolster your profile as a freelancer. These credentials not only enhance your marketability to clients but also reflect a level of professionalism and commitment to your craft.

    Lenders may view such certifications as an indication of your ability to maintain and potentially grow your income over time, which could be beneficial in offsetting concerns regarding income inconsistency.
  • Establish a business entity. Forming a Limited Liability Company (LLC) or incorporating your freelance business can provide a more structured and formalized framework for your income. This step separates your personal finances from your business finances, which can make it easier to track income and expenses.

    Additionally, operating under a business entity may provide mortgage lenders with a sense of assurance regarding the legitimacy and stability of your income. It allows for clearer financial auditing and demonstrates a level of professionalism and seriousness about your freelance career, which could in turn enhance your mortgage approval prospects.

Struggle 2: Providing proof of income

Documenting income is a pivotal part of the mortgage application process. However, freelancers might find it more challenging to provide conventional proof of income, such as pay stubs or W-2 forms. They may need to compile a more extensive array of financial documents to establish their earnings.

Thus, keep meticulous records of all income and expenses. Utilize reliable accounting software or engage a certified accountant to ensure all transactions are recorded accurately and in real time. This includes invoicing clients promptly and keeping copies of all paid invoices, contracts, and any other proof of income. A well-organized financial record not only simplifies the process of proving income but instills confidence in lenders about your financial responsibility.

Additionally, timely and accurate filing of your annual tax returns is crucial. Your tax returns, especially Schedule C for sole proprietors, provide a clear, government-verified record of your income. Ensure that your tax returns are completed by a reputable tax professional to avoid any errors that could raise red flags with lenders. Keeping copies of at least two years of tax returns, along with all supporting documentation, is advisable to demonstrate a consistent income history.

Struggle 3: Establishing a strong credit history

While building a strong credit history is crucial for anyone applying for a mortgage, freelancers might find this particularly challenging. Without a regular income, managing finances and maintaining a healthy credit score can be more demanding, which in turn affects their mortgage approval odds.

These steps will help you establish a strong credit history as a freelancer:

  • Timely payment of bills and debts: This includes not just credit card payments, but also utility bills, rent, and any installment loans you may have. Setting up automatic payments or reminders can help ensure you never miss a due date. Over time, a history of timely payments will positively impact your credit score, which is a critical factor mortgage lenders consider when evaluating your application.
  • Maintain low credit card balances: Keeping your credit card balances low relative to your credit limits can significantly benefit your credit score. This is referred to as your credit utilization ratio, and it's recommended to keep it below 30% on each card, and even lower if possible.
  • Avoid opening new credit accounts frequently: Each time you apply for a new credit card or loan, a hard inquiry is made on your credit report, which can temporarily lower your credit score. Frequent hard inquiries within a short timeframe can signal financial distress to lenders. Hence, it's wise to limit the number of new credit accounts you open and only apply for credit when absolutely necessary.

    Additionally, maintaining older credit accounts showcases a longer credit history, which can be beneficial for your credit score.

Standard Loan Programs You Can Use

Securing a mortgage can be a complex process for both salaried employees and freelancers, each with a unique financial profile. The following standard loan programs offer a range of options to cater to different financial situations and requirements.

  • Conventional loans - these aren't backed by the government. However, most conventional loans conform to the rules laid by Fannie Mae and Freddie Mac, which are two government-sponsored enterprises. At least 3% down and a credit score of 620 or better is required to qualify.
  • Federal Housing Administration (FHA) loans - these are the go-to loans for anyone who needs more leniency on certain aspects of their situation. At least 3.5% down and a minimum credit score of 580 are required for FHA loans.
  • US Department of Agriculture (USDA) loans - these mortgages don't require a down payment. However, you must meet income requirements and buy a home in a suburban or rural area to qualify for a USDA loan.
  • Department of Veteran Affairs (VA) loans - if you have a military background, this is probably your best bet. VA loans require zero down, and lenders will be the ones setting their own credit score thresholds, which lie between 580 and 660. VA loans also have ultra-low interest rates, no private mortgage insurance, and low closing costs. 

The 10-Step Home Buying Process

  1. Find A Real Estate Agent 
  2. Mortgage Pre-Approval
  3. Buyer Consultation
  4. Home Search
  5. View Homes
  6. Make An Offer To Purchase With Deposit
  7. Home Inspection
  8. Loan Underwriting, Appraisal, And Final Approval
  9. Close On Your Home
  10. Move In

1) Find A Real Estate Agent

Let's face it, when was the last time you dealt with negotiating contracts, insurance, appraisals, home inspections, property lines, and state laws. Probably not at all, right?

That's why finding a great Real Estate Agent is a critical part of the home buying process to ensure that the transaction goes smoothly, and that any challenges are dealt with quickly. Fortunately, you've found me. And perhaps the best part of all is that my services come at no cost to you.

Buying a home is a life changing experience, and you deserve to know the step-by-step process. You can count on me to guide you safely through the entire home buying process from start to finish. I'm here to answer all your questions, and give you the guidance you deserve.

2) Mortgage Pre-Approval

Your real estate agent will connect you with a mortgage broker that will find the lender who is a great fit for your particular situation. It is important that you know the loan amount that you qualify for and how much home you can afford before you start looking for a home.

Pre-approval for a mortgage involves your lender doing a credit check, verifying your income and employment, reviewing your financial statements, and having a look at your assets to ensure you fall within their lending guidelines.

It’s important to remember that you don’t have to borrow the full amount that you've been pre-approved for. It's also essential that you make sure the mortgage you're looking at is within your financial means.

3) Buyer Consultation

The buyer consultation is the time where you discuss with your Real Estate Agent exactly what you want in your new home, and also what to expect during the entire home buying process.

The listing agent is working for the seller, and they are not interested in getting you the best price possible. But that's why I am here to represent you, and to look out for your best interest.

During the consultation, we will clearly identify the things you absolutely "must have" in your home, the things that you would "like to have", and the things you could care less about. We'll discuss how we will communicate with each other, and what you can expect from me in terms of consistent follow up. In addition, we'll discuss the timeline and different milestones of the home buying journey so you'll know exactly where we are at every stage.

4) Home Search

At this stage in the home buying process I will search the MLS for homes that meet your criteria based upon the information you shared during the consultation. I'll find several homes that meet your specific criteria, and forward them to you for your review.

Doing my search, I always consider the following characteristics listed below that generally define a good neighborhood to live in.

With your approval, we'll move to the next step which is to schedule a time to view the homes.

1. Access to Essential Areas

No one enjoys long commutes to work, school, or shopping centers. While you don’t need to choose a home right on top of these things, you still want it to be relatively easy to get where you need to be.

2. Good Schools

Good schools are very important to house hunting families. Most states provide school testing scores online. Be sure to do your research on the schools in the neighborhoods that you’re shopping

3. Neighborhood Reputation

Crime rate and home maintenance are two key factors that influence a neighborhood’s reputation. A quick drive through town will give you a picture of how well residents are maintaining their homes. And crime statistics are available online.

4. Growth Potential

Be sure to buy a home in an area that people are going to want to move to in the future. Have a look to see if new homes are being built in your prospective neighborhood. That’s usually a positive indicator for future growth.

5) View Homes

The fun begins! It's time to take the list of homes I found from the MLS search and go see them up close. I will schedule a showing time that works best for you.

6) Make An Offer To Purchase With Deposit

Once we find the home that you want, we'll make a good offer to purchase. However, before we make the offer, I will strategize and make sure the offer we make keeps us in a strong negotiating position.

The seller rarely accepts the initial offer. They’ll usually counteroffer and change the terms of the offer. But that's where I will come in and submit a counteroffer that keeps your best interest in mind.

Once the offer is accepted, you will be under contract to purchase your first home.

7) Home Inspection

At this point you are under contract to purchase. However, we want to make sure that the home does not have damage that would prevent you from completing the purchase, and that the home is worth at least what you are contracted to pay for it or more.

A home inspection is a cost you have to pay out of pocket, and generally costs anywhere from $400 to $600.

Note: This cost range can vary depending on the area and the property itself.

8) Loan Underwriting, Appraisal, And Final Approval

At this stage in the process, the lender may have various conditions that need to be met in order to put the final stamp of approval on your loan. One of the key items that is required during underwriting is an appraisal so that the lender can verify the value of the property.

The lender will order the appraisal, but you will have to pay for it. The appraisal cost anywhere from $300 to $500.

Note: Just the like the inspection, this cost range can vary depending on the area and the property itself.

Once the appraisal is obtained and found to be acceptable, you will then be on your way to final loan approval pending any final loan conditions that need to be met, such as additional documentation or verification of certain items relevant to your loan application.

9) Close On Your Home

It's time to sign your loan and mortgage paperwork from the lender, and for the seller to sign the deed that officially makes you the new home owner.

10) Move In

This is what you've been waiting for! Once all the paperwork is signed at closing, you will be handed the keys to your new home.

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