Artists: Secure A Mortgage With These Tips

Artists often face challenges when applying for a mortgage due to inconsistent income and difficulties in providing proof of earnings. However, it is still possible for artists to qualify for a mortgage. There are two main types of mortgages: conventional (or uninsured) mortgages, which require a 20% down payment or more, and insured mortgages, which require a 5-20% down payment. Self-employed artists must typically provide extensive documentation about their business and income sources, including tax calculations and records of regular work. They may also need to demonstrate a history of consistent income through tax returns, which can take time to build. To improve their chances of approval, artists can save for a significant down payment, build good credit, and explore specialized lenders experienced in working with individuals with inconsistent incomes.

Documenting income

As an artist, you may have diverse income sources, including royalties, residuals, and freelance work. This can make it more challenging to qualify for a standard mortgage with a lending financial institution, as they require proof of income. To improve your chances of approval, you should document your income meticulously, keeping records of contracts, payments, and tax returns. This demonstrates financial responsibility to potential lenders. Here are some key points to consider:

Record-Keeping

Keep detailed records of your earnings, including contracts, payments, and tax returns. This meticulous record-keeping demonstrates financial responsibility and helps potential lenders understand your financial situation.

Diverse Income Streams

If you have diverse income streams, ensure you provide documentation for each source. Artists often have multiple income sources, and lenders will consider your overall financial picture when assessing your eligibility for a mortgage.

Professional Portfolio

Prepare a professional portfolio showcasing your work, achievements, awards, and recognition in your artistic field. This demonstrates your commitment and success in your career, which can be advantageous when applying for a mortgage.

Consult Specialists

Connect with fellow artists who have successfully obtained mortgages, or consult financial advisors specialising in working with creative professionals. They can provide valuable insights and guidance tailored to your unique financial situation as an artist.

Government-Backed Programs

Investigate government-backed mortgage programs, such as FHA or USDA loans, which may have more flexible eligibility criteria. These programs often cater to individuals with non-traditional income sources, increasing your chances of securing a mortgage.

Co-Signers and Down Payments

Consider having a co-signer, such as a family member or trusted friend, with a stable income and good credit. A larger down payment can also improve your chances of approval, as it demonstrates your financial commitment and reduces the lender's risk.

Remember, while it may take more time and effort to secure a mortgage as an artist, it is an achievable goal. By documenting your income, building good credit, saving for a down payment, and exploring specialised lenders, you can overcome these unique challenges and take a significant step towards achieving your dream of homeownership.

Building credit

As an artist, you can take several steps to build your credit and qualify for a mortgage. Here are some key strategies to improve your creditworthiness:

Maintain a Good Credit Score

A strong credit score is crucial when applying for a mortgage. Lenders use credit scores to assess your creditworthiness and determine the terms of your loan. Pay your bills on time, reduce any outstanding debts, and regularly review your credit report for errors. Correcting any inaccuracies on your credit report can help boost your score. Aim for a credit score of at least 630, which is generally considered the minimum requirement for mortgage qualification. Remember that a higher credit score can also lead to more favourable mortgage terms.

Document Your Income

As an artist, you may have diverse income sources, such as royalties, residuals, and freelance work. It's essential to meticulously document all your income streams, including contracts, payments, and tax returns. This demonstrates financial responsibility and helps potential lenders understand your earnings. Creating a comprehensive budget that accounts for both your regular and irregular income can also show lenders that you can effectively manage your finances.

Explore Specialized Lenders

Traditional lenders often prefer borrowers with stable incomes, which can be a challenge for artists with irregular earnings. Consider seeking out lenders experienced in working with creative professionals or those with inconsistent incomes. These lenders may be more willing to consider your unique financial situation and offer tailored mortgage products that don't rely solely on traditional income documentation.

Save for a Down Payment

While the standard down payment for a mortgage is typically around 20%, some lenders allow for lower down payments. Save consistently and consider utilizing high-yield savings accounts to boost your savings with interest earnings. A larger down payment can improve your chances of approval and reduce the amount you need to borrow, lowering your monthly payments and overall interest costs.

Co-financing and Co-signing

If your income falls short of the lender's requirements, consider co-financing options. This could involve partnering with a family member or friend who can contribute to the down payment. Alternatively, you might think about having a co-signer with a stable income and good credit, which can strengthen your loan application.

Professional Portfolio and Networking

Prepare a professional portfolio that showcases your artistic achievements, awards, and recognition. This can demonstrate your commitment and success in your field. Additionally, connect with fellow artists who have successfully obtained mortgages. They can offer valuable insights and guidance tailored to your situation as a fellow artist.

Government-Backed Programs

Research government-backed mortgage programs, such as FHA loans or USDA loans, which may have more flexible eligibility criteria. These programs are designed to support individuals with non-traditional income sources, and by taking advantage of these opportunities, you can increase your chances of securing a mortgage.

Remember, building credit and qualifying for a mortgage as an artist is achievable. It may require time and effort, but with the right strategies and a determined mindset, you can overcome the challenges and secure the keys to your dream home.

Saving for a down payment

Maximize Your Savings

Commit to saving consistently over time. Consider moving your savings to a high-yield savings account or a money market account to take advantage of higher interest rates and boost your savings balance. Shop around for accounts with competitive interest rates, as some online banks offer rates between 4% and 5% for high-yield savings customers.

Reduce Everyday Expenses

Evaluate your spending habits and identify areas where you can cut back. Reducing discretionary spending, such as dining out or subscription services, can help you save more towards your down payment goal.

Explore Specialized Lenders

Seek out lenders experienced in working with artists and entertainers. These lenders are more familiar with handling inconsistent or difficult-to-document incomes. They may be more willing to consider your unique financial situation and offer tailored mortgage products that don't heavily rely on traditional income documentation.

Co-financing and Borrowed Down Payments

Explore options like co-financing with a family member or borrowing the down payment. If you choose to involve family, ensure the funds are a cash gift with no repayment expectations, as additional financial obligations can impact your mortgage eligibility.

Government-backed Mortgage Programs

Research government-backed mortgage programs, such as FHA loans, which may have more flexible eligibility criteria and lower down payment requirements.

Pre-approval from Lenders

Consider getting pre-approved for a loan. Home sellers usually prefer to deal with pre-approved buyers as it indicates seriousness and financial capability. During the pre-approval process, the lender will assess your financial situation and verify your creditworthiness.

Documentation and Budgeting

Meticulously document your income, including contracts, payments, and tax returns. This demonstrates financial responsibility to potential lenders. Additionally, create a comprehensive budget that accounts for both your regular and irregular income streams, helping you understand your financial capabilities better.

Remember, saving for a down payment is a journey that requires patience and persistence. Stay focused on your goal, and don't be afraid to seek advice from fellow artists, financial advisors, or specialized lenders to make your dream of homeownership a reality.

Exploring specialised lenders

As an artist, you can explore specialised lenders to secure a mortgage. These lenders are more likely to be willing to work with your unique financial situation and offer tailored mortgage products. They may not rely on traditional income documentation sources like W2s and tax returns for approval. Instead, they might consider other factors, such as your professional portfolio, demonstrating your commitment and success in your artistic career.

Some financial institutions, like Quontic, cater to individuals with non-traditional income sources or unique financial situations. They offer innovative and inclusive lending approaches, which can be beneficial for artists with inconsistent or challenging-to-document income.

Additionally, you can investigate government-backed mortgage programs, such as FHA loans or USDA loans, which may have more flexible eligibility criteria. You can also explore community finance providers like credit unions, which are often more accessible to freelancers and small businesses. Online small loan providers, such as Zopa and Funding Circle, could also be worth considering.

If you're looking to purchase studio space or large-scale specialist equipment, you may consider taking out a loan from a High Street bank or community finance provider. Artist-led studio providers have used mortgages to purchase buildings and then used studio rents to pay them off, creating permanent workspaces for artists.

For those with valuable art collections, art-backed financing is an option. Companies like Enness Global Mortgages and Christie's Art Finance specialise in this area, offering loans secured by fine art and luxury goods. These lenders can provide access to capital while allowing you to leverage your art collection as collateral.

Getting pre-approval

To get pre-approved, you will need to contact a lender and provide them with financial documentation, such as bank statements and pay stubs. The lender will also need to verify your information and check your credit score. This process can be done online, in person, or over the phone, and you should receive a pre-approval letter within 10 business days. This letter is typically valid for 60 to 90 days, and sometimes up to a year.

In terms of the specific information you will need to provide, this includes proof of assets, confirmation of income, credit report, employment verification, and other important documentation. A good credit score is essential, and you will likely need a score of at least 630 to qualify. Lenders will also want to see that you have a reliable source of income, which can be more challenging for artists who may work part-time, freelance, or have multiple sources of income.

It is important to note that pre-approval is not a guarantee of a mortgage. Once you have found your home, you will need to get full approval from the lender, which may involve providing additional information or documentation.

Frequently asked questions