How to buy a house as a freelancer
May 14, 2019
This is a tale of (buying a house in) two cities. Are you thinking about buying a house as a freelancer? Better start finding those 1099s.
The writing on the (tiny) walls
In the winter of 2015, my husband and I were living the new parent dream in an incredibly well located, painfully-too-small fifth floor apartment in the heart of Boston. We were holding on to our pre-kid life by our fingernails. Double parking Zipcars full of groceries and diapers on a major downtown street, stuffing the stroller onto packed Green Line trains, and trying our very best to pretend that we hadn’t outgrown our perfect, kid-free, city life. Spoiler alert: we had.
Years earlier I’d left my FTE job with an in-town ad agency to strike out on my own. I loved the consulting life: flexible hours, endless earning potential (in my mind), and a new challenge every day. We didn’t have money problems, but we certainly had cash flow problems: one month we were riding high on a lucrative contract, the next month… well, we ate a lot of toast.
Somehow, this sounded like the perfect time to buy a house.
That 1099, pre-approval life
My husband was—and still is—employed full-time. He’s never been tempted by the 1099 lifestyle, and candidly, our love for affordable health insurance has always trumped his desire to bSolo. (Employment pun for the win.) We thought this would help us enormously when buying our first house. Hey look! One of us is super responsible and employed and completely deserving of home ownership. We we’re wrong, but we certainly weren’t right.
For anyone unfamiliar, one of the first steps when buying a home is often getting a pre-approval from a lender. This letter is your unofficial stamp of approval, letting sellers know that you’ve been given a tentative “okay” from the bank to borrow a certain amount of money. It’s based on a number of factors, most of which I’m completely unqualified to speak to, but a big one is income over the years. When deciding how much you can borrow, the banks want to know how much you make… consistently. Gulp.
My husband’s income was steady and strong, but it was also a fraction (less than half) of my income. But to a bank, my income wasn’t dependable. I was a rogue cowboy. My employment landscape was the Wild West and banks don’t love the Wild West. As a result, our pre-approval was significantly lower than we’d expected. We knew pretty definitively what we could borrow—and it wasn’t going cover our dream condo in the city. Goodbye, friend!
Get thee a crackpot team
From the very beginning, we’d been working closely with both a real estate agent and a mortgage loan officer to help guide us through the home-buying process. Our agent’s job paled in comparison to the job of the loan officer. We learned quickly that working with a loan officer with 1099 experience is hugely important. Our pre-approval was one thing, but it was issued based on a lot of speculation. In order to actually secure the loan, we needed to prove that I’d made the money I said I had, and also show that my potential earnings would be in-line with my past earnings.
Side note: There were a number of times during the process that I wished deeply to be a W-2 employee somewhere. The most acute? Proving income. In our case, three years of 1099 forms and receipts had to be conjured from a huge pile of unorganized, unlabeled boxes of income information that I (thankfully) found shoved in the bowels of a long-forgotten closet. So, hot tip, make sure you know where to find all your income history.
Give us your first born
What struck me most about the entire process was how much documentation was needed. Because of my self-employed status (re: volatile income) any transaction on our bank account was called into question.
Midway through the process we purchased plane tickets to head home for the holidays and needed to document the transfer from our savings account to pay for those tickets. We received a reimbursement from a parent for a large item and needed documentation of the reimbursement and a signed letter that it was not a gift intended for the purchase of the house.
For someone who doesn’t typically dot all the Is or cross all the Ts, it was stressful. When we finally got notice that our loan was secured, the relief was enormous.
Our (runner up) dream condo
The good news: we found and fell in love with an adorable condo north of the city. It was in our budget and seemed enormous after living in a one-ish bedroom with two grown adults, a toddler, and a cat. The best part? We had a driveway, a dedicated place to park our car and take our all our groceries and diapers up to our house. We were ecstatic.
The bad news: we were buying a house one month before Tax Day and three weeks before quarterlies were due. The decision to part with cash was daunting and it felt like every time the phone rang there was another expense: $500 here, $1000 there, a quick $100 to some subcontractor, $250 for a fee—it felt endless.
We’d determined how much cash we were prepared to put down on our condo, but we hadn’t factored in how much of that money would be eaten up prior to closing. We were fortunate that our agent was able to work on our behalf to dramatically reduce our closing costs, but our overall down payment had taken a few hits before we even got to closing day. As a buyer, you are not responsible for paying for your agent’s fees though, that part is covered by the sellers. Huge score, as those fees can be giant!
And then it happened! After weeks of stress, photo copies, phone calls to my mom, bank visits, and bittersweet goodbyes, we signed the (17,809,028) documents. At 3:30pm on a sunny, cold March afternoon, it was done. We got the keys to our very first condo.
Now do it again, as a W-2
It didn’t take long for us to outgrow our beloved condo and start setting our sights on something bigger, something with the elusive “back yard.” Since purchasing our condo, I’d taken on a full-time role with one of my clients. I missed a lot of things about my indy life, but buying a home was definitely not one of them. The second time around my husband and I submitted our tax returns via an online service and we’re pre-approved in under an hour. Our loan was processed online and all we did was show up to sign. It felt almost unbelievable.
Those two experiences were equally eye opening for me. While I was an independent, I felt overwhelmed, but mostly I felt like the establishment was sending a signal that I didn’t deserve to buy a house. That I was somehow not trustworthy. But I know that nothing could be farther from the truth. As more and more people move towards the gig economy—and the lifestyle it enables—established industries will have to play catch up and do a better job finding creative ways to support people whose careers fall outside the W-2 norm.
As for me, I keep an active alert for homes in my target neighborhoods. You just never know when we’ll get the itch again…