Getting a home loan can be a challenge for self-employed people: A typical mortgage lender wants to see one job with steady month-over-month income.
But an independent contractor might have time off between jobs, varying amounts of income each pay period, and business income that looks low because of capital investments, which are common tax write-offs for the self-employed. This often means they can’t qualify for a traditional home loan, even though they’re earning enough to afford it.
In fact, about one in four borrowers see their traditional purchase loan applications rejected in areas like Dallas and Travis counties, where self-employment is roughly 30 percent, according to Zillow. Around the rest of Texas, the chances of being rejected can be even higher for well-qualified borrowers, including small business owners, freelancers, entrepreneurs, and self-employed borrowers.
“It’s not that they aren’t financially capable of buying a home—it’s that they’re up against a traditional lending system that hasn’t adapted to a changing workforce,” said Michael Slavin, CEO of online mortgage lender Privlo, which rolled out its services in Texas Friday, one of nine states in which it is currently doing business.
“We underwrite each borrower and are able to tailor the loans,” Slavin said. “We’re using technology to be a lot more flexible because we deal with the exceptions to all the lending rules.”
Because of those exceptions, Privlo considers many more data points beyond the typical W2 used by traditional banks and institutions to assess a borrower’s creditworthiness, like tax returns and bank statements.