Originally posted on January 16th, 2017 at: https://www.tangerine.ca/forwardthinking/borrowing/a-couple-s-dream-of-homeownership-on-a-freelancer-s-income
For many, the importance of homeownership has been passed down from previous generations. We follow suit by working hard at our 9-to-5 jobs and saving for our 20% down payment.
But times are changing, and so is the workforce landscape. Some of us no longer work the standard 40 hours per week. In 2015, over 2.75 million Canadians were self-employed. This may mean more hours and more money, but it also means inconsistency and instability of income. That can be an issue when you're trying to arrange financing for a home purchase.
In July 2015, when Kiran Singh and Michelle Wong Ken began house hunting, they were like many other couples. They had been married for a year, were expecting their first baby, and had saved enough to make an offer on their first home. Michelle worked as a full-time environmental planner. Kiran, on the other hand, freelanced as a television and movie production coordinator. While Michelle had a steady salary and a T4 slip to present to their mortgage broker, Kiran worked on various projects for uncertain time periods throughout the year.
“My contracts technically say I'm employed weekly, so there's no guarantee of how long I'll be working," said Kiran. "They wanted 3 years of work history, letters of employment, and notices of assessment. I was one of the lucky ones because my project lasted from January to September 2015."
Kiran felt fairly confident because he had been in the industry for several years, and he knew his project would last the majority of the year. What he didn't know was that he had to be employed at the time of closing.
“The person making $60,000 annually looks much more attractive to the lender than the freelancer making $80,000 over the course of 3 months," he said. "I thought the ultimate goal was proving how much I made. I didn't realize I had to actually be employed at the time of closing."
Once they understood this, they had to speed up their process, as Kiran knew his project would be wrapping up in September and his next one wouldn't begin until November.
They ended up being approved for $700,000 on a two bedroom, fully detached house in Toronto's East End. However, had they known the pitfalls around homebuying as a freelancer, they would have avoided the tight, two-week deadline to close the deal, which found them spending a little over budget.
Being rushed into such an important decision wasn't something they wanted when purchasing their first home.
Lessons for others
The couple suggests these tips for those in similar positions:
1. Have all of your financial paperwork and tax information readily available. Lenders will want to see your history for 3 consecutive years or more
2. Pay off any debt, and save for as much of a down payment as you can
3. Plan ahead. If you know you'll be purchasing a home, take on contracts over a long time frame or around the time you wish to purchase, to ensure stability and positive cash flow