As you start earning more money in your freelancing work, access to loans becomes easier. All you have to do is effectively show all your proof of income. Let’s learn about easily getting a loan as a freelancer.
How do you go about showing your proof of income? Effectively showing your liquid assets determines how easily you’ll walk out with a loan.
Forget any misconceptions you may have about freelancers being unable to get loans. That lenders are wary if your income fluctuates which deters freelancers from applying for loans for which they could qualify. Some freelancers think inconsistent numbers show they do not have a stable income or employment and may have a difficult time paying off the loan.
Some freelancers become discouraged when lenders ask for more information regardless of whether they have great credit. This only happens when your sources of income are not properly shown. The lender has to create an accurate picture of the amount you’re capable of paying off by studying all your income sources.
It is therefore important to gather all your sources of income, these show not only your earnings but your reserves. Qualifying for a loan is about having enough money to pay it back, so show that you have the ability to do so by reporting all your sources of income and reserves.
Nine-to-fivers show the paycheck stubs, the equivalent for freelancers is to show their tax returns and bank statements. This means that all you’ve to do is gather and submit the correct information demonstrating that you have more than enough consistent income.
Remember that income means income with a consistent source. If you can show that this source has been active for two years, then can easily proceed with your application. Below is a list of some information that you’ll need to make it easier to get a loan.
Information Needed
- Find and present the last two years of your personal and business tax returns
- Present a copy of your government-issued photo id or driver’s license
- Present your last two months’ statements on all your cash asset accounts. These include your bank accounts, 401(k) accounts, retirement funds, stocks, and other cash assets
Your loan officer will run a credit check and these documents will support your claims and often result in a loan. Make sure you report all consistent sources of income.
Exceptions
The guidelines for offering self-employed to receive loans have become friendly towards freelancers offering a lot more flexibility.
You can qualify, if your income increased over the last year to exceed the standard of your peers. This means you can present only that year’s tax returns. Getting a loan is about putting your best foot forward.
Another exception is when you have been using your own funds to cover any down payments, closing costs, and any other costs, you’ll not need to present your business tax returns. You’ll only need to provide the last two years of your individual tax returns. This satisfies your reserve requirements, showing that you are low risk.
An increase in your income over the last two years if you’ve been a freelancer for five years strengthens your loan application. Successfully getting a loan relies on successfully showing that your income has increased, continues to do so, or is the standard industry income.
Monitor Your Credit Report
There are many effective apps that help you monitor your credit score and show your credit report. You can view your credit report and FICO Score free and learn how to improve your credit and financial literacy.
You can download the app and it will give you all the details about your credit history and guide your credit choices. This will help you find anything that is negatively impacting your score and any errors. Using these apps will not impact your credit, it will simply give you a snapshot of your credit. Remember requesting a credit report multiple times within a short period of time negatively impacts your score.
Earning Affects Your Loan Amount
The amount you earn will affect the amount you’ll receive. It is important to list all your liquid assets which demonstrate all your sources of reported income. These sources cumulate and boost your chances of getting the best loan amount that you need.
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