Freelancers, Home Loans, and Proving Future Earnings

One new change I've seen in the business of home lending is that banks are tougher than ever when it comes to verifying self employment income. In addition to looking at current year-to-date balance sheets and past two to three years tax returns, some lenders are now wanting proof of future self employment income.

The problem with being self employed ~ as we've all discovered ~ is that future income can be tough to prove. After all, we don't how many people might be requiring our services next month, although we can probably make a reasonable guess based on an average of the last several months. Unfortunately, lenders no longer will accept "guesstimates". Banks and other lending companies now want actual proof of your future income.

If you are in the market for a new car or home and have to prove future self employment income, here are some options that may work.

Service Contracts. Back in the 1980s when I purchased my first home, the janitorial contracts I kept on file from my various cleaning gigs were accepted by my lender as a guarantee of future income. What helped of course, is that I had already been doing janitorial work for several years prior which established a solid self employment history.

Janitorial contracts are one example of monthly (or even weekly) service contracts that may be considered as proof of future self employment income. Other examples of future, steady income could include
--housekeeping services
--yard work or gardening
--ditch maintenance
--building or grounds maintenance
--in home nursing or home health aid services
--catering
--day care or in home nursing

Signed contracts for upcoming work. If your freelance work is a bit more unscheduled than weekly maintenance work, a signed contract for upcoming work may also work as proof of future income. Examples include contracts for building a new home or remodeling an old home, a car restoration, an advance on a new book, musical gigs, or a growers contract for crops.

Invoices & Accounts Receivables. If you have billed for work that hasn't been paid yet, your outstanding invoices (called "accounts receivables") can confirm future income that is still in processing. One good example of an accounts receivable is money owed to a subcontractor who has freelanced some government work and must wait three months (or longer) for payment.

These are just a few examples of ways that us freelancers and self employed can guarantee our future income to a lender. Your accountant may have additional recommendations.

More articles by this contributor:

Home accounting system setup for the self employed.
Home office deduction for the self employed.
Invoice basics for home businesses.