The Urban Institute’s Housing Finance Policy Center recently released a new brief, and the stats for self-employed homebuyers and homeowners aren’t so great — or all that surprising. The report, “The Continued Impact of the Housing Crisis on Self-Employed Households,” is the latest proof that while the median income for self-employed households remains higher than the median income for salaried households, self-employed Americans have been slower to recover from the now decade-old housing crisis than salaried households.
The brief looked at American Community Survey data from 2001 to 2016. According to the survey, nearly 12 percent of American households earned their entire income — or a part of their income — from self-employment in 2016.
That same year, self-employed households earned a median income of $66,900; salaried households earned $56,100. (It’s important to note that the self-employed median income is still $5,800 lower than in 2007.) Despite the self-employed earning more money, they saw a much larger drop in homeownership rates (down 6.3 percent from 2007-2016) than salaried households (down 3.1 percent).
Additionally, mortgage use for self-employed homeowners fell more than for salaried homeowners in that same time period (13 percent for self-employed vs. 6 percent for salaried).
So why do entrepreneurs and the self-employed continue to lag behind in both homeownership and mortgage use?
Some point the finger at the mortgage industry’s strict loan requirements, which often work against those who are self-employed. Wrote off your business expenses? That could lower your income (on paper) and your chances of qualifying for a sufficient loan. Are you an independent contractor? Since you don’t have pay stubs to show the lender, you’ll need to hold on to the last two years’ (at minimum) tax returns as well as client receipts, deposit slips, and bank statements.
The good news is it’s not impossible for the self-employed to qualify for a loan, even without paying higher interest rates or needing a co-buyer. Homeownership isn’t out of reach.
They just might have to jump through a few more hoops. Consistent work, good credit, enough cash on hand, and the ability to provide a large down payment will go a long way toward helping these hardworking entrepreneurs buy their dream home.