Homeownership in the United States soared to its highest level in 12 years in 2020, as low mortgage rates and the coronavirus pandemic prompted more Americans to want to own a home. The biggest group of new homebuyers were those under the age of 35. The homeownership rate among Black Americans increased to 47%, the highest since 2008, whereas just a year prior, Black homeowners had fallen to its lowest rate on record, according to the U.S. Census Bureau.
Challenges still face potential homeowners when qualifying for a mortgage, especially among the self-employed, as more and more Americans turn to the gig economy, relying on income from things like side hustles and freelance work. A survey by FlexJobs found that 36% of American workers have been freelancing during the pandemic – that’s an increase of 2 million freelancers from 2019. And more than a third are freelancing full-time.
By 2027, the gig worker, which includes temp workers, independent contractors, and freelancers, will be the majority of the work force, and they want to own homes. In a survey done by Fannie Mae, 75% of gig workers want to buy a home at some point, yet 69% don’t see it happening in their next move, acknowledging that the majority of lending practices are one size fits all, requiring a steady paycheck, a W-2, and a good credit score, things that don’t exist for many gig workers.
New Solutions for the Gig Economy
The good news is that new initiatives and mortgage products can help would-be homeowners realize their dreams, considering factors like side hustle income, and offering options like crowdfunding for down payments.
“Our primary job is to provide lenders the cash they need to provide safe products like the 30-year fixed mortgage available to everyone, at a reasonable rate,” says Fannie Mae VP Danielle McCoy.
Crowdfunding & Homeownership?
Fannie Mae has joined forces with mortgage-banking firm CMG Financial. CMG works with housing advocates, agencies, and secondary lenders like Fannie Mae, to find solutions for the borrower who might not have all the income or cash to buy a home. CMG and Fannie Mae created HomeFundIt.com, the first and only crowdsourcing platform for the sole purpose of raising cash for a down payment and closing costs. A prospective buyer publishes their story online with the hope that family and friends will be moved to donate enough cash to cover these costs.
HomeFundIt also offers $1,500 closing cost grants and feature called UpIt raises funds when the borrower, family, and friends shop online. Companies like the Gap, Walgreens and Overstock.com give a percentage of the sale, company determined, to the home buyer’s fund. All funds are strictly for down payments and closing costs.
Paul Akinmade, the chief Marketing Officer at CMG remembers, “When I worked as a banker for a mortgage bank, I had to reject people for a mortgage, but when I explained why and what they needed to do to be approved, I would help them find a way to become homeowners.”
“In the 20 months since Homefundit.com launched, more than 550 campaigns have been funded,” he adds.
New Solutions for a New Economy
Fannie Mae also has a product called “Home Ready.” It’s targeted towards low to moderate income borrowers who want to buy, but have limited cash for a down payment, up to a 50% debt-to-income ratio, and a FICO score as low as 620. Side gig rental income is considered, and parents can be co-borrowers.
In addition, the borrower makes down payment of just 3%, which can be funded multiple ways, including crowdfunding or mortgage insurance that can be cancelled once equity reaches 20%.
Fannie Mae and Freddie Mac have launched new technology that analyzes all the info a freelancer must submit – years of tax returns with all the backup information – in minutes not days, when it was done manually. This saves so much time and keeps the costs down for the borrower.
A Dream Can Become Reality
71% of lenders allowed borrowers use gig income to secure a mortgage and 89% of lenders expect this number to grow. With new options like HomeFundIt.com and Home Ready, dreams can become reality.
To take advantage of these new options, you must first determine if your lender is backed by Fannie Mae and offers these products, and as McCoy says, “You must do as much research about your mortgage as you do about your home before starting the homebuying process.”