As a people-pleaser type, I spend a lot of time trying to convince myself that I don’t need anyone’s approval but my own. But alas, in this journey to find our dream jungalow, the word ‘approval’ keeps on surfacing again and again. And then a scary mutation of the word: PRE-approval also rears it’s ugly head into the home search. As if needing approval in the first place isn’t bad enough already, in today’s real-estate market you need to get a loan PRE-approval before you can really start searching for a home. Why? Because you don’t really know how much you can afford (unless you’re paying all cash for a house) until a lender tells you how much (if anything!) a bank will give you for a loan.
Having been denied for pre-approval twice in the past, I wasn’t feeling overwhelmingly confident about pre-approval this time around, but I decided to stay positive and give it another go….
Since I am a freeelancer and Jason is a full-time caregiver to Ida, we don’t have steady income. And these days, the banks are most concerned about making sure that you can cover your monthly mortgage payments so that you don’t default on your loan, so even if you’ve saved a ton and have a 20% down payment, they still want to be confident that your monthly income will be enough to cover your home loan and all of your other expenses every month for like, the next thirty years. They make calculations based on how much you earn and how much you’re mortgage will cost–they call this the debt-to-income ratio and this ratio is the key to getting pre-approved for a loan.
I’ve learned a TON during this process but, as a freelancer perhaps the most difficult part of getting pre-approved for a loan isn’t just convincing the banks that you will have enough money coming in every month…it’s also got a lot to do with how much is going out AKA tax write-offs. If you have your own business, you (like me) probably have a lot of business expenses and you likely write them off. So a lot of your income goes back into your business and therefor when you do taxes your gross income (meaning how much you earned in total) is probably a whole lot more than your net income, meaning how much you’ve earned minus your expenses. It’s confusing, I know. But the gist of it is that the banks are looking at your net income when they look at your income and if you write off a lot of your earnings, the amount of money that you earn after expenses may not be all that much and the bank might not be all that excited about giving you a loan.
Ok so now that I’ve explained all that I’ll give you some good news. WE JUST GOT PRE-APPROVED!! And it really wasn’t all that scary. I had always heard that the bank looks at two years of tax returns and averages out the net earnings. I made significantly more money in 2014 than I did in 2013 and so my average earnings were being brought down by 2013. After filing my 2014 taxes early, the amazing lender Noelle (who Nicole recommended to me, thanks Nicole!) told me that it was possible to get pre-approved just off my 2014 taxes and this was music to my ears. It had something to do with using Freddie Mac as opposed to Fannie Mae or something along those lines but all I know is that all of the sudden we are pre-approved for $590,000 and finally, finally after more than two years of going to open-houses on the weekends we can start searching for a home FOR REALZ.
Now practically speaking, in our neighborhood in L.A. you can’t get a whole helluva lot for $590,000. The L.A. market is completely nuts. All the homes that I had on my “Jungalow Dreams” board on Trulia are TOTALLY (like hundreds of thousands of dollars) out of reach (remember THIS post?). But a least now we can get more realistic and search for a home within our means. This means to quit dreaming and to visit the homes with a lens for actually being able to get a loan and buy the home that we can turn into our dream home…slowly and realistically. So Jason and I have started a new shared board on Trulia. This one is called Budget Beauty Homes and we aren’t adding anything to the board that’s not actually within our$590,000 budget. This may mean we can’t afford to live in the exact neighborhood we want to live in or we may have to live with one bathroom instead of two–but at least now we know and we’re not house-hunting in the dark.
So I could say that our home search continues…but the truth is that it’s actually just beginning…because if we find something that we like now…It could actually become ours.
*Top image snapped of THIS home on our Budget Beauties board while visiting an open house.
*I’m documenting our entire journey of becoming first-time home owners in partnership with the online real-estate site, Trulia. Catch up on all the posts here.
Hi Justina! God, why is everything so difficult for us freelancers? Sometimes I wonder if the freedom we get from being freelance really pays off for all the inconvenients… and the answer is yes! I couldn’t bear the thought of going back to an office.
Thank you for all the things you share, you’re one of my absolute faves!! Hugs
Seriously, I know. You’d think this country wouldn’t want there to be entrepreneurs!? It’s crazy. But yes, all TOTALLY worth it! Thanks for stopping by!!
conducted by the Ministry of Manpower, there are 257,300 residents in Singapore who engaged in “own account work”. What this means is freelancers account for 8.3% of all employed residents in 2022.
Unfortunately, for most freelancers, home ownership is a tricky task to navigate. Home loans tend to be more favourably geared toward employed individuals who earn a regular, salaried income.
However, if you intend to take up freelancing as a long-term occupation, there are several things you should take note of before applying for a home loan. Here’s a quick guide on what are the criteria affecting your ability to take on and be approved for a mortgage
Congratulations on your new venture!
Thank you so much! We’re excited!
come to long beach! your money will stretch a bit more and you can get a really cute vintage home in a nice neighborhood!!
I’ve heard long beach has some seriously cute neighborhoods–got to get down there to check it out!
Congratulations Justina!
I’m so happy for you,Jason and Ida…
Good luck and God Bless your new venture
so sweet of you! Thank you so much!
YAY! So glad it’s coming together for you! This stuff is all so tricky for freelancers, but Noelle is awesome at helping navigate it all. Happy house hunting!
So seriously tricky! Noelle is wonderful–crossing fingers we find something good!! Thanks again for the great referral!
hi justina, where are the chairs from in the pic above?
also, your home prices are waaaaaay more reasonable than here in san francisco! thank your lucky stars — you have a lot to work with and will get something grand!
Hey Sarah! Yeah I’ve heard SF is brutal these days with the prices!! I don’t know where the chairs are from–sorry! I snapped that pic at an open house — but a quick search led me to these: https://www.etsy.com/listing/226627384/1960s-mid-century-hans-wegner-style-teak?ref=related-3 xoxo
i’m so happy for you! and i am absolutely loving your new book. i pre-ordered and got it two days ago and i am savoring every page.
Yaaay Justina! This is beyond exciting friend. Im so happy for you and your family. Now the real fun can begin! I love a lot of the houses on your Budget Beauties board. I just know youll find the right one. We compromised and are living with one bathroom, for the time being, because our little bungalow had a crap ton of potential, but the most important thing is it was in our budget. We knew we would be going down to just 1 income and we were adamant about staying well within our means. I cant wait to see which one ends up being “the one”!
It will be a great adventure, so frame it as such. Your book just came out, I see you mentioned on Houzz, and your name pops up on several top design awards. And now you have the bookie will be epic, and you’ll know the right house for you as soon as you see it. Just don’t become house-poor. Buy a house Less than you were approved for, and you will love it & have cash set aside. My prediction: lots of biz around Ms. Justina…..new book….GREAT FINANCIAL You’re at the cusp of something spectacular. Grab it. And a few years down the road, you’ll be purchasing up! Best wishes!
Congratulations Justina! Thanks for sharing your journey to home ownership. This is exciting!
Happy House Hunting!
This is SUCH a useful post Justina – thank you so much for sharing! My boyfriend and I are both freelancers, and we’ve been discussing the possibility of a mortgage in the next two years. It is really encouraging to hear about your process, and I am thrilled to hear that you’ve been approved!
Congratulations! And very happy house hunting!
Monica x
Congratulations, Justina! We want to buy a place next year and the whole process seems so daunting. Thank you for sharing the journey with your readers.
Good for you, fellow freelancer! I was terrified also when applying for pre-approval. I happened to freelancing for big corporations was making a lot of money. We got the home with ease since I had a history of good earnings for 10 years. Now in recessionary times, I am like you freelancing for myself and my salary is not the same. But I am determined to increase it again and earn well and better than before. You will find a great house because you have a vision and great taste!
Ugh! Yes, freelancing, banks and loans. 3 words that strike dread into my heart! Congrats on the pre-approval- such a relief, isn’t it?? And have fun house hunting! Yes, LA is nutballs, but it is nice to KNOW that when you look at a home it really could potentially be yours! :)
Wow! The homes you posted here look awesome. Congrats!
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