Ultimate Guide to Becoming a Nontraditional First-Time Homebuyer
So, you’re thinking about finally becoming a homeowner. That’s so great! You’re in for quite a journey — and if you do it right, this one decision could be lifechanging (in the best way).
But you’ve got a bit of a problem. A concern, if you will.
You’re a nontraditional worker — meaning you don’t have a typical 9-5 job. Maybe you’re freelance, or maybe you own your own business. Either way, not only have you never bought a home before, but you also don’t know if you even qualify for a mortgage.
That’s okay. Many first-time homebuyers have similar concerns as you. And it’s even more common amongst nontraditionally employed individuals like yourself.
But that doesn’t mean you can’t do it. In fact, you don’t even have to do it alone.
If you’re ready to buy a home, here’s what you need to know about what it means to be a nontraditional first-time homebuyer, who qualifies, your home loan and assistance program options, and the general process of getting your first home.
Ready to get started? Here we go.
What is a First-time Homebuyer?
You might think that a first-time homebuyer is simple someone who has never owned a home before. And while this is partly true, it’s a little more complicated than that.
According to the United States Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who has either:
Never owned a home before; or,
Not owned a primary residence in the past 3 years
You could also be considered a first-time buyer if:
Your spouse has not owned a primary or principal residence in the past 3 years
You're a single parent or another individual who has only ever owned a home with their former spouse
You did own property but it either had no permanent foundation or did not adhere to local, state, or building codes
Keep in mind that not every lender follows the HUD’s definition of “first-time homebuyer.” What this means is that you could be found ineligible for specific assistance programs — like down payment assistance loans or grants — even if you technically count as a first-time buyer under HUD.
But don’t fret. Even if you don’t qualify for certain government or lender assistance programs, you might still have other options.
What is a Nontraditional First-time Homebuyer?
A nontraditional first-time homebuyer can have many definitions. To keep things simple, however, here’s how we define it:
A nontraditional first-time homebuyer is someone who meets the HUD’s definition of a first-time buyer. At the same time, they do not hold a typical 9-5 job. Typically, they also do not receive employee benefits.
Examples of nontraditional workers include:
Freelancers or contingent workers: A freelancer is someone who tends to work on multiple projects for their clients. These projects can be either short-term or ongoing. Freelancers often work alone, but not always. Freelancers are also technically considered "self-employed."
Self-employed individuals: Being self-employed means you have more control over your projects, clients, and so on. Self-employed individuals include freelancers, business owners, and independent contractors. Someone who owns a sole proprietorship can also be considered self-employed.
Contractors: A contractor is someone who's hired to do a specific task or project, usually for a company. They're often self-employed.
Business owners: You’re a business owner if you have an LLC, sole proprietorship, franchise, or another business entity. Since business owners run their own company, they often have more agency over their day-to-day operations as they’re not reliant on any one client for income. Many business owners have employees working for them.
As a nontraditional worker, you might have to approach the homebuying process a little differently to someone who’s considered a bit more “traditional” in their employment. By no means does this prevent you from becoming a first-time homebuyer, though!
How Do I Qualify as a First-time Homebuyer?
As a first-time homebuyer, you’ll need to meet certain requirements to qualify for a mortgage loan. Typical qualifications include:
Minimum credit score of 620 (some lenders have more lenient requirements)
43% maximum debt-to-income (DTI) ratio (including housing costs)
Proof of sufficient income
Minimum down payment (at least 3%, usually higher)
2+ years of consistent job history or employment
Any other lender-specific requirements
Requirements also depend on the type of home loan you get. Certain types of down payment or closing cost assistance programs will have their own requirements.
For the most part, the requirements are the same even if you’re a nontraditional worker. However, you might have better odds of getting approved for a loan if you:
Keep careful track of your finances over the years (and can show steady growth or consistent income)
Have at least 2 years’ worth of federal income tax returns — and state, if applicable
Have active contracts with your clients
Can provide additional business information (e.g., business financials, profit/loss statements, projected revenues, etc.)
Can put down a larger down payment (ideally closer to 10% or 20%)
Have a much lower DTI ratio
Have a higher credit score (in the 700+ range would be best)
Get a non-conforming mortgage loan or go through a home lender who specializes in working with individuals like you
Remember, you might not have to meet all of these requirements to qualify for a mortgage. But the more prepared you are before applying for a loan, the better your chances of getting the financing you need.
What are First-time Homebuyer Requirements by State?
To be quite honest, the process of buying a home can seem pretty complicated from the onset. That’s certainly been the case for us here at Pennies and Pixels! And it doesn’t make it much easier knowing that first-time homebuyer requirements can vary by state.
But… There is good news.
The rules of being a first-time homebuyer aren’t actually all that complex. They’re certainly not that much more complicated if you live in, say, North Carolina (as we do) vs. Washington State.
Here are the general requirements:
Minimum credit score: You’ll have better approval odds for a mortgage with a 620+ credit score. However, you might be able to get certain home loans — like FHA loans — with a 500 credit score and a high enough down payment and income.
Maximum DTI: Your DTI is the percentage of monthly debts you have compared to your monthly gross (before taxes) income. Say you earn $4,000 a month gross. Now, say your monthly debts add up to $1,500. Your DTI would be $1,500/4,000 or 37%. Most lenders require a maximum DTI of 43%.
Proof of steady and sufficient income: You’ll typically need at least 2 years of consistent and stable employment. Income requirements vary widely by lender and loan program. But shoot to earn at least 2.5 times your mortgage loan amount. For example: If your annual gross income is $75,000, your maximum mortgage loan should be $187,500.
Minimum down payment: You’ll need to put 3% to 3.5% down when getting a house in most cases. Some loans, like VA loans and USDA loans, have a 0% down payment requirement for eligible borrowers.
Lender-specific requirements: Some lenders might have their own requirements. For instance, you might not qualify for a mortgage if you have an active bankruptcy on your credit profile. You also might not qualify with a recent foreclosure (though this can also disqualify you from being a first-time buyer in general).
Certain first-time homebuyer programs will also have their own requirements (more on that below). For example, though, you might not qualify for a first-time buyer down payment assistance program if your income exceeds a certain threshold.
Benefits of Being a First-time Homebuyer
Whenever it’s your first time doing something, it’s always a good idea to see what types of perks or advantages you might be uniquely qualified for. That’s something we’ve done as well — and why not? You never know what you might come across (and how it might make your homebuying journey easier)!
Here are some of the biggest benefits to being a first-time homebuyer:
Lower minimum down payment requirements: Certain types of home loans, like FHA, USDA, and VA loans, exist to help make it easier for first-time buyers to buy their first home. These home loans have lower down payment requirements.
Down payment or closing cost assistance: Through the government, you can find information on down payment and closing cost assistance programs for first-time buyers. This includes loans (which need repayment) and grants (which don’t). You can ask your lender about your options when speaking with them about financing options. Many of these programs are offered through the state or federal government. Check with the U.S. Department of Housing and Urban Development (HUD) for more information.
Lender- or neighborhood-specific incentives: In some cases, such as with newer construction developments, you might find additional programs or incentives designed to help you afford a home. Speak with the developer or lender.
Early withdrawal exemptions: If you have an IRA — an individual retirement account many nontraditional first-time buyers have in lieu of a 401(k) —, the IRS will wiave the 10% early withdrawal penalty on the first $10,000 you withdraw from your account. If your spouse also has an IRA and is a first-time buyer, they can also withdraw $10k for a total of $20,000. You could be eligible if you purchase or construct your first time. You’ll need to meet other requirements, so check those out.
Home Loan Options for First-time Buyers
Unless you’ve already done some prior research, you might not know about your financing options as a first-time homebuyer. We’ve been there, too, and we know how confusing it can get when you’re just starting out.
While there are lots of types of home loans, here are the most common ones:
Conventional loans (conforming): These are one of the most common types of home loans for first-time buyers. In most counties throughout the USA, conforming loans can be up to $726,200. They require 20% down if you want to avoid getting private mortgage insurance (PMI). Otherwise, some lenders will accept a much lower down payment. You’ll typically need good credit or better to qualify.
Conventional jumbo loans (conforming): If your loan is greater than $726,200, you may need to get a jumbo loan. Maximum loan limits are based on your county of residence.
Conventional loans (nonconforming): A little less common than conforming loans, nonconforming loans have different eligibility requirements. Loan minimums and maximums also depend on where you live and the lender. Nonconforming jumbo loans usually have an upper limit of $1M to $2M.
Other nonconforming conventional loans: Certain other home loans are available to bororwers with poor credit or who might otherwise be viewed as “high-risk” to lenders. These loans may have higher interest rates or lower maximum loan amounts. Some have additional requirements, such as minimum property size requirements. These could be a good option for self-employed individuals who don’t qualify for other conventional loans.
FHA loans: With an FHA-approved loan, you'll need just 3.5% for your down payment (with a 580+ credit score). You’ll need 10% down with a 500 credit score. This makes them a good option for first-time buyers who might not have much money saved up for a down payment yet.
USDA loans: With a USDA loan, you won't need a down payment. Income and DTI requirements tend to be more lenient. But your home may need to be in a rural area to qualify.
VA loans: With a VA loan, you also don't need a down payment or private mortgage insurance (PMI). However, you will need to be considered a current or ex-military member or surving spouse to qualify.
Fixed-rate or adjustable-rate mortgages: Different types of home loans can have either a fixed or variable interest rate. A fixed rate is one that never changes; a variable rate can fluctuate over the life of the loan based on market conditions. Fixed-rate home loans include 30-year fixed-rate mortgages and 15-year fixed-rate mortgages. Adjustable-rate loans can also come with a 10-, 15-, 20-, or 30-year repayment term. However, they usually have a fixed interest rate for the first few years before switching to a variable rate.
Qualified mortgages: A qualified mortgage is essentially any home loan that lenders consider to be less risky. To get one, your lender must determine that you’re very likely to repay what you borrow. Learn more about this option on the Consumer Financial Protection Bureau’s page.
Are Home Loan Options Different for Non-traditional Buyers?
First-time homebuyers who don’t have a typical 9-5 job could still get any of the previously mentioned loan types — provided they qualify.
There are also nontraditional mortgages available. These loans, of course, are also available to individuals who work a typical 9-5. However, they’re more geared toward “nontraditional” buyers. This can include:
Borrowers with a lower credit score or subprime credit (580-619 FICO credit score)
Borrowers with inconsistent income (like some self-employed or freelance individuals)
Borrowers with higher DTI
Nontraditional mortgages typically come with more flexible repayment terms. For example, some come with interest-only payments at first. Others come with a customized repayment plan that can be longer or shorter than what you’d normally get. The tradeoff is that these loans usually have a higher interest rate or come in lower amounts.
Common options include:
Balloon mortgage loans: With this type of loan, the payment structure is different from typical home loans. For example, you might not have to make any payments until an agreed-upon date. Or you’ll only have to pay interest for a certain number of years. When the loan coems due, however, you’ll need to pay the entire amount off in one lump-sum payment.
Interest-only mortgage loans: With this option, you’ll only need to pay back the interest on your loan for a certain amount of time. On the loan’s maturity date, you’ll need to pay off the remaining balance. This is similar to how balloon payment mortgages work.
Best Home Loan Options for Non-traditional First-time Buyers
We get it — before you take on something as major as a home loan, you want to make sure you’re getting the best possible option. Since everyone is different, what might be the best loan for your friend or neighbor might not be the best for you.
And that’s totally okay.
We might not be able to give you the most direct answer here, but we can give you something to help you get started with narrowing down your choices. Here are some of the biggest things we’ve considered throughout our own homebuying journey that might help you along the way:
What’s the interest rate and is it competitively low? (hint: check the current rates before you apply)
Does a fixed-rate or an adjustable-rate loan work better for you?
What are your repayment terms options (e.g., 10-year, 15-year, 30-year)?
How much of a down payment can you realistically save up?
What’s your current credit score and do you have time to improve it (if needed) before applying for a loan?
What are the loan minimums and maximums, and do they fit into your homebuying budget?
Are you buying a home in a rural area or not? (remember: rural homes could qualify for USDA loans)
Do you meet the income requirements?
What home loan types do the lenders you’re considering offer? (be sure to compare several lenders)
Does the lender offering these loans have any first-time buyer incentives or programs for you?
Chances are, you’re going to have other questions as you go. But this can give you a good starting point — and it can help you decide which home loan type works best for you.
Types Of First-time Homebuyer Assistance Programs
There are quite a few first-time homebuyer programs out there, depending on the state in which you live. Since there are so many options, that would have to be a separate post. Keeping in mind that this won’t be a comprehensive list, here’s a brief overview of your main options as a first-time homebuyer.
Down Payment Assistance Programs
One of the biggest challenges when it comes to buying a home is saving up a for down payment — especially if you’re not used to saving up large sums of money. Fortunately, there are many down payment assistance programs available to first-time buyers.
For instance, North Carolina has the “NC Home Advantage Mortgage” program that offers up to $15,000 in down payment assistance to first-time buyers. To qualify for this specific program, the home you’re buying must be located in North Carolina. You must also be a first-time buyer and use the home as your primary residence within 60 days of buying it. Your annual income (gross) must not be more than $87,500.
Each state has its own down payment loan and grant options. Loans must be repaid, whereas grants do not have to be repaid. See what’s available in your state.
Government-backed Home Loans
Several types of home loans are government-backed. This includes FHA loans, VA loans, and USDA loans. These loans come with lower down payment requirements, which makes them easier to get than non-government-backed loans like conventional or jumbo loans.
Closing Cost Assistance Programs
When you buy a home using financing, you’ll typically need to pay closing costs before officially getting the keys. These costs are usually between 3% and 5% of the total home purchase price — though they can be lower or higher in certain cases.
Say, for example, you’re getting a home loan for $350,000. 3% of that would be $10,500, while 5% would be $17,500. This is in addition to the down payment.
While some lenders will let you roll your closing costs into your monthly mortgage payments — which will increase your payment amount — you might be required to pay these costs upfront.
Fortunately, there are certain closing cost assistance programs to help with these costs. In the case of new construction neighborhoods, you might even be able to get a certain amount of money off these costs — say, $10,000 or $15,000. This is meant to incentivize new buyers to purchase property, but they can help if you’re ready to buy.
Tax Deduction Options
First-time buyers may qualify for tax deductions on things like property taxes, interest rates, or specific home upgrades — like solar panels. Speak with your loan officer or a tax or legal professional about your options.
State or Local Resources
There are also state or local resources available to help you on your homebuying journey. HUD has quite a few resources for those seeking them. You can go to their website and filter by state to see what’s available.
Do You Qualify for First-time Homebuyer Programs?
Since we’ve covered some of this in this article already, we’ll keep it short here. To qualify for a first-time homebuyer program, you’ll need to meet certain eligibility criteria like:
Minimum credit score
Maximum DTI
Minimum or maximum income (some programs have income limits)
Supporting documentation verifying your income
Age requirements (usually 18 or the age of majority in your state)
First-time buyer requirements (e.g., never owned a home before or haven’t owned a primary residence in the past 3 years)
As you look through the available programs in your state or region, carefully read through their requirements. If you don’t meet certain requirements, you might need to move on. Alternatively, you can reach out to organization behind the program and ask them to clarify any eligibility criteria.
10 Questions to Ask Before You Buy a Home
At this point, you’re probably feeling all of the things — excitement, nervousness, maybe a touch of trepidation. And it’s no wonder since you’re about to embark on an awesome journey and become a homeowner!
But before you do it, before you really commit to anything, make sure you’re prepared. We probably don’t need to stress the importance of that… But just in case, here are some questions to ask yourself before getting any further in your homebuying journey.
What’s Your Credit and Financial Health Like?
Whenever you apply for any type of financing — whether it’s a home loan, a credit card, an auto loan, or something else — you’ll need to meet certain credit score, income, and debt-to-income requirements.
So, make sure you’re in a good place financially and credit-wise before submitting any formal loan applications.
You can check your credit score online by requesting it from the three major credit bureaus — Experian, Equifax, TransUnion. You can also get a copy of your credit report from each of these bureaus. Or you can get a free annual copy of your reports from all three places by going to AnnualCreditReport.com.
Check your credit reports for any errors. You’d be surprised at how many tiny errors appear on people’s reports every year… and how much they can bring down your score.
As for financial health, income is a big one… but so is your debt-to-income ratio. If you owe too much money in monthly debts, you might not qualify for financing. In that case, you’ll either need to wait to apply until you pay off enough debt or you’ll need to increase your income to lower your overall ratio.
Can You Save Up for a Down Payment?
Sure, you don’t always need a down payment to get a home loan. USDA and VA loans don’t even require one (usually). And FHA-backed loans come with relatively low requirements.
But.
Having a down payment can significantly reduce how much you need to borrow from a lender. It can also lower your monthly payment. And it can cut down on how much you pay in interest over the life of the loan.
Here’s an example:
You want to buy a home for $350,000 and you have $70,000 to put down — 20%. You’ll need a home loan for $270,000. Now, say you get a 30-year fixed-rate mortgage with an interest rate of 6% (for easy numbers). Your monthly payment will be $1,619. You'll pay $582,763 over the life of the loan. $312,763 of this will be in total interest charges.
Now, say you buy a home for $350,000 with a $50,000 down payment — 14%. Your home loan will be $300,000. If this is a 30-year fixed-rate mortgage with 6% interest, your monthly payment will be $1,799. Your total loan cost will be $647,514. Your total interest charges will be $347,515.
By saving up that extra $20,000 for your down payment, you can save $64,751 in interest. Subtract that extra $20,000 saved for your down payment and that’s a total savings of $44,751.
Now, imagine if you only have 3.5% saved for a down payment. Or 5%. Your total financing charges will be much higher the smaller your down payment is.
It’s okay to have a smaller down payment — just make sure you’re aware of the long-term costs. According to the National Association of Realtors’ (NAR) most recent data from 2018, most first-time buyers only put down between 6% and 7% on their first home. So, if you have a smaller down payment, you’re not alone.
*All calculations exclude interest, taxes, closing costs, and other fees
Are You Prepared for Closing Costs?
Closing costs are upfront fees you'll need to pay when purchasing a home. They may include appraisal fees, title insurance transfer fees, government taxes, loan origination fees, and tax service provider fees. They might also include your innitial property taxes or homeowners insurance payment.
Typically, closing costs are around 3% of your home purchase price — sometimes more, sometimes less.
Certain states — like Missouri, Indiana, Wyoming, North Dakota, and Mississippi — are known for having the lowest closing costs. Other states — including Washington, D.C., New York, Washington State, Maryland, and Delaware — have the highest average closing costs.
Make sure you’re prepared to pay any closing costs upfront. If you choose to roll them into your loan, calculate what the total and monthly cost of these will be.
Is Your Work Sustainable?
As a freelancer or self-employed individual, knowing the answer to this question is almost critically important.
Ask yourself not just if your work is sustainable, but what your expected monthly and yearly earnings will be for the foreseeable future. Do you have contracts with your clients? If so, how long are those contracts valid for? Do you work on retainer, and for how much?
Really make sure your work — whatever it may be — is financially sustainable. Your lender is going to need this information to determine how much of a risk you are. But you’ll also need it for your own peace of mind and financial well-being.
How Much Mortgage Do You Qualify For?
There are many ways to determine how much mortgage you qualify for. Perhaps the easiest way is to use an online mortgage calculator. Another useful option is to do either the prequalification or preapproval process as both of these can give you a clearer idea of what you qualify for.
One other thing that’s worth noting is that most mortgage lenders will average out your yearly earnings rather than use your month-to-month earnings. Say, for example, you earned $60,000 in 2022 and $80,000 in 2023. Your average yearly income would be $70,000 — that’s the number most lenders will use to determine how much you qualify for.
How Much Can You Actually Afford?
Just because you technically qualify for a larger mortgage doesn’t mean you should necessarily get the maximum possible amount. Review your budget and run some numbers to see what monthly payment you can realistically — and comfortably — afford.
You shouldn’t be working at the upper limits of your budget. And you shouldn’t have to cut out your Hulu or Amazon Prime subscription to be able to keep up with payments. You should be able to afford the payments right now, or before applying for a loan.
What’s Your Timeline?
It can take around 40 or 50 days once you’re under contract to buy a house. If you’re going with a new construction, or if you’re still early in the process, it can take months or even years to actually buy a home — from start to finish.
But none of that really matters so much as your personal timeline.
Well, okay, it does to a certain point. Like, say you’re on an apartment lease that’s up in three months. If you’re trying to get into your new home before your lease ends, you might be on a bit of a time crunch.
If you have more time, however, that can certainly ease any stressors you might have — like having enough time to shop around for lenders or save up for a down payment.
Do You Want a Realtor?
The decision to get a realtor to help you along this journey is entirely up to you. We’d suggest it if you’re still on the fence about where to buy or don’t know which neighborhoods are the best ones to consider. A realtor can help you stay objective as you shop around for your dream home.
And if you're worried about paying them a commission, keep in mind that the home seller is usually the one who does that. You'll want to be clear on the terms and any fees before choosing a real estate agent, though. And you’ll want to make sure they’re experienced working with self-employed or other nontraditionally employed individuals like yourself — just to make sure you’re in good hands.
So, how do you find a realtor?
One of the best options is to simply see who's local to your area. You can also ask for referrals from someone you know who's used a particular agent in the past. You can also find a list of real estate agents on sites like Realtor.com.
Which Type of Home Do You Want?
There are a lot of different types of homes out there, so take your time sorting out your ideal one. Here are a few follow-up questions to ask yourself as you narrow down your options:
Do you want a new construction or an older model?
Are you interested in a single-family home? A condo? A townhome?
How many stories do you want it to be?
What’s your ideal neighborhood (within your price range)?
What other specific home features are you looking for (e.g., bedroom or bathroom count, minimum square footage, yard size, slope or no slope)?
Is Now the Right Time to Buy?
Again, this is a very personal decision. But it can also be based on some external factors, like the current mortgage interest rates and the availability of homes in your preferred area and at your price point.
Sit down and take some time to really think about whether now’s the right time to buy or not. When we first started out in our journey, we had quite a few discussions about this. It also took quite a long time to iron out what the “right time” actually was for our family.
Whatever else, don’t rush the decision. You’ll know when it’s the right time… largely because you’ll have far fewer doubts and a lot more energy to get the process going!
What's the Buying Process Like for First-time Buyers?
For the most part, the process of getting a home as a first-time buyer isn’t much different from how it’d be if you’d purchased a home before. The same can be said for those who don’t hold a traditional 9-5 job.
Of course, everyone’s journey is going to be a bit different. With that in mind, here’s how the process typically looks.
Check Your Credit Score
Step one is a big one, but it’s also relatively simple: check your credit score. Typically, you’ll need good credit (670+ FICO) to qualify for the best rates and the type of home loan you want.
If your credit score isn’t where it needs to be yet, work on improving it. This can take some time — anywhere from a few months to a couple of years, depending on your starting score and credit history. So, the sooner you get started, the better off you’ll be.
There are several ways to improve your credit score. One way is to make all payments on time. Another way is to start paying down your debts (as this will lower your DTI ratio).
Pro tip: Avoid applying for new forms of credit in the months leading up to applying for a mortgage loan. Too many applications can lead to hard inquiries, which could bring down your score by a few points.
Calculate Your Mortgage Budget
If you haven’t already done so, calculate your budget for a home. Consider your current debt payments, your other living expenses, and your income. Whatever else, make sure you can afford your monthly mortgage payment and that you aren’t overextending!
If your expenses change fairly frequently, use the past 3-6 months’ worth of bank and credit card statements to see how much you’re earning, spending, and saving. This can help you estimate your future expenses.
Always err on the side of caution and shoot to spend less than you’ve got budgeted. That way, if you overlook something by accident, you’ll still have room in your budget to pay for what you need.
Not sure if you’re ready to take on a mortgage just yet? Check out The Mortgage Experiment!
Review Your Existing Debts and Income
Lenders will look over your existing debts and income when determining whether to approve your mortgage loan. Before you get to that point, make sure you’ve got a good idea of your financial responsibilities. That way, you’ll be as prepared as possible and won’t be blindsided by anything that comes up.
Start Saving Up for a Down Payment
Although you might be able to get away with putting 0% down, it’s generally best to have some kind of down payment when applying for a home loan. Try to set aside a certain amount of money every month — or a percentage of your income, if it fluctuates — until you’re ready to buy a home.
Worst case scenario, you won’t have a 20% down payment, but you’ll have something. Best case scenario, you’ll save up more than you actually need and you’ll be prepared for closing costs — or other expenses like moving fees.
Shop for Lenders
It’s up to you how you go about this, but your options include online-only, local or in-person only, and hybrid (online and in person)) lenders. You can use an online marketplace that lets you compare multiple lenders at once. Or you can search manually.
Whatever option you choose, make sure at least a few lenders — 3-5 is a good number — make your short list. Look for lenders who have experience working with non-traditionally employed pros like yourself. But don’t limit yourself to just these types of lenders — if you find one that really jives with you but doesn’t specialize in nontraditional lending, that’s totally fine.
Then, you can compare each lender, their loan offerings (including loan types and typical interest rates), and their requirements. You can also compare their online reputation, their application process, their customer service, their typical closing times, and any other features or perks they might offer.
Take some time here to make sure you’re making an informed decision. And don’t be afraid to schedule a phone or video call with your chosen lenders to get a more hands-on feeling about how it’d be to work with them.
Choose Your Home Loan Type
Of course, you’ll want to decide which type of mortgage best fits your needs. Is an FHA loan better for you? A USDA or VA loan? Conventional? Jumbo?
Think about repayment terms, typical interest rates, rate types (fixed vs. variable), maximum loan amounts, and so forth.
Get a Realtor
It’s not required that you get a realtor… but it can help! Having an experienced, impartial realtor on your team can make buying a home much easier. It can also make it easier to find some great neighborhoods that fit what you’re looking for.
You might want to choose a realtor who’s got experience working with people like you — that is, self-employed, freelance, or business owner type professionals. This isn’t strictly necessary, but it doesn’t hurt.
Get Prequalified
Prequalification lets you check what types of loans, rates, amounts, and terms you might get based on your overall credit score, income, and other factors. It does not affect your credit score, but it can give you a better idea of what you’d qualify for.
This is an optional step, and one you can do much sooner in the homebuying process — if you choose to do it at all.
Gather Your Mortgage Loan Documents
The closer you get to the actual loan application process, the more important it is that you get your documents in order. This is also something you can do early on, though you can also wait until the last minute. Wait too long, though, and you might end up forgetting or misplacing something, which could lead to unneeded stress as you scramble to get everything together.
Remember, as someone who’s self-employed or a business owner, you’ll probably need a few extra documents that someone working a traditional 9-5 won’t need.
This might include profit/loss statements, state and federal income tax returns, a declaration of assets, 6+ months of bank statements, and earnings or income statements. You might also need proof of business insurance, a business license, and client contracts.
When you speak with different mortgage lenders, ask them for a comprehensive list of what they require. Or check their website as they might provide that information there. Worst case scenario, you’ll find out what you need — and are missing — when it comes time to apply.
Get Preapproved
Unlike prequalification, preapproval does affect your credit score — but usually only by a few points. This is because it’s a more official process that enables a lender to check your credit and determine whether you’re low enough risk for them to lend you money.
Preapproval isn’t always necessary, but it does show a potential seller that you’re serious about buying their home. It also gives you a better idea of what you actually qualify for than prequalification or mortgage calculators will ever do.
Although preapproval does affect your credit, there is good news. You can shop around for a mortgage — and get multiple credit checks — within a 45-day period and it will only show up as one hard inquiry. This means you won’t get dinged multiple times. It also gives you time to compare lenders without worrying about damaging your credit score.
Shop Around for Your New Home
Okay, you’re excited about buying a new home. So, you’ve probably already done a fair bit of shopping around — possibly even before you started saving up for a down payment.
But now that you’re very close to finalizing the process and actually getting a loan, it’s time to really sit down (or, more likely, head out) and shop around for your dream home! Or your starter home. Whichever you’re in the market for right now.
This part should be fun — way more fun than gathering documents or reading over loan estimates. So, grab your realtor and start checking out houses and neighborhoods. Oh, and if you’re doing all of this with a partner, you probably want to bring them along, too (even way more fun that way)!
For real, though… You might want to bring along a list of key features that you really want and need in your future home. Keep an eye on your budget as well. And be prepared to make a couple of compromises along the way — just nothing too big that’ll detract from your purchase.
Put in an Offer
Once you’ve actually found the home of your dreams (or the one that makes your heart thrum with excitement), it’s time to make an offer. You can do this through your realtor, or you can speak with the seller directly, depending on the situation and how comfortable you are with handling the process yourself.
There are several ways to go about making an offer, but start by making sure you know how much you're willing to pay for the home. In some cases, you might need to have a preapproval letter on hand first, too. Your offer could still be accepted without one, but it can increase your chances of getting the seller to say yes.
Pay Earnest Money
If the seller accepts your offer, you might want to put forth earnest money as this shows the seller you're serious about buying their home. The earnest money — also called a good faith deposit — it will usually go in an escrow account where it will remain until the transaction is either successful or falls through.
If everything works out as intended, the earnest money will then be applied toward your down payment or closing costs. If the transaction falls through due to no fault of your own, you’ll get it back and the seller will (probably) put their house back on the market or move on to the next potential buyer.
Get a Contract in Order
Once your offer is accepted, you’ll also be able to work out a contract. Oftentimes, your realtor is the one who actually draws up the contract.
The contract should contain the terms and conditions of the home purchase. This includes any contingencies that either the buyer or seller must meet for the transaction to be successful.
For example, if you as the buyer can’t secure financing for the home within a certain amount of time — like 30 or 60 days — the home sale can be canceled penalty-free. Or, if you get a home inspection done and there are major problems that the seller is unwilling to address, you could also back out.
There are a lot of legal details here, so we won’t get much more into those here. Just make sure you’ve got some good people on your side at this point and that you don’t rush into anything!
Get a Home Inspection and Appraisal
A home inspection might not be required, depending on where you live and the conditions of the loan agreement. But an appraisal is almost always necessary to be able to get financing.
You’ll also probably want to get an inspection done just in case there are any hidden defects or issues in the home. If you don’t have an inspection and something comes up after you’ve purchased the property, you’ll be fully responsible for any repairs or associated costs.
Apply for Mortgage Financing
Now, you can actually apply for a mortgage loan!
If you’re approved, your lender must give you an official loan estimate within three business days of receiving your application. The loan estimate will include all of the information you need about the home loan you applied for. It is not legally binding, meaning you don’t have to agree to it. However, the lender will have to provide you the loan they offer in the loan estimate if you accept the loan within the given timeframe.
Keep in mind that you’ll typically need to get a home appraisal done before the lender will officially approve the loan. This is because the appraisal shows them how much the property is worth compared to the required financing amount. If the property value is less than the home loan will be, it might be harder to secure a loan.
Prepare for Closing
Okay, you’re almost there now — just a little bit more!
Once all of the conditions are met and the financing is in place, everyone will meet up to finalize all remaining details and close on the property. This includes the seller and the buyer, of course, as well as any real estate agents, and attorneys (if applicable).
On this final date, you’ll need to sign the loan agreement and related documents. You’ll also need to pay the down payment and closing costs.
When you close on your new home, your lender may also set up an escrow account. This account will typically hold your property taxes, homeowners insurance, and PMI (if applicable).
If you don’t live nearby, or if you’d rather do the process online, you might be able to schedule an eclosing — that is, a digital closing.
Get Your Keys!
And finally, we come to the best part and the part where all of your hard work finally pays off: Getting the keys.
And, of course, moving in. And starting your new adventure — you know, all that good stuff.
Tips for First-time Nontraditional Homebuyers
Whew! You’ve made it this far, so you’re already pretty rock solid when it comes to the process of becoming a first-time homebuyer. But that doesn’t mean you know absolutely everything there is to know about buying or owning a home. Heck, that really would require an entire book.
But… here are a few extra tips for buying your first home as a self-employed freelancer, business owner, contractor, or otherwise:
Save, save, and save some more for your down payment and closing costs.
Set aside any savings in a high-yield savings account.
Really keep an eye on your credit score and make sure you’re getting rid of any errors that shouldn’t be there.
Try not to rush the process — taking your time can help minimize or eliminate costly or stressful mistakes.
Keep careful track of your business finances and expenses before applying for a loan.
Calculate all possible costs of getting your first home (from loan origination fees to closing costs to moving costs).
Before you get a mortgage, budget as though you already have one — this will help you get in the right frame of mind, help you save up for a down payment, and keep your finances on track.
Build as much consistency in your line of work as possible (e.g., keep track of profits and losses, get contracts in order, don’t have any “dead” months where you don’t earn anything).
Getting a Home as a Nontraditional First-Time Buyer
And there you have it: A step-by-step guide and an overview of what it’s like to be a first-time homebuyer who is also self-employed (or otherwise doesn’t work 9-5).
There’s still plenty to do, and more to learn. But hopefully this gives you a better understanding of the process. More than that even, we hope it helps you see where you are in your own homebuying journey and some areas you might need to work on — and where you already excel.
If you’re interested in learning more about becoming a first-time buyer, or if you want to follow along with our journey, check out some of our other articles on the topic. Or if you’re just looking for something cute, fun, and sometimes educational, take a look at our art and comics.
Here’s to you and your successful homebuying journey~