Being a freelancer like Kara Perez with variable income can make it difficult to save toward your goals. Here’s how she’s tackling her down payment goals.

I want to buy property in the next 12 months. Since I’m a freelancer, this is a tricky goal. A house is arguably the largest purchase I’ll make in my life. From credit checks to saving for a down payment, there’s a lot to be done.

Still, my biggest obstacle to getting a house is probably that I am a freelancer. Banks are less inclined to lend to us than they are on W-2 employees. Why? Contract workers often have fluctuating income, which means banks worry people won’t be able to meet their mortgage payments. As a result, there are stricter requirements.

Some of the restrictions contract workers can expect are:

Higher interest rates. Lenders may stick freelancers with higher interest rates to make the loan worth it. If they’re scared you won’t make a payment due to fluctuating income, they may give you a higher interest rate to compensate themselves for that risk.

At least two years of freelance income to report (aka tax returns). Freelancers need to have all their paperwork in order. Banks will want to see proof positive that you have consistent income via your tax returns, and business owners may have to show a profit and loss statement. Lenders also want to see a list of your assets and your debts.

A bigger down payment. Banks are more likely to lend to people who can offer a higher amount up front. This shows the bank that you’ve got cash on hand, and they have to lend out less money overall.

When banks are lending money, their biggest priority is getting that money back. That’s fair enough, but these restrictions do make it harder for freelancers to get into real estate. Right now, interest rates are increasing and housing prices are still high across the US.

In spite of these odds, I’m setting my sites on home ownership in the next 12 months. For me, owning a home is both a financial and personal decision. My personal space is very important to me, and it’s where I run my business. I’d like to feel secure in my home and know that it’s mine.

I’ve also gotten pretty sick of moving. In the last five years I’ve moved five times, always chasing cheaper rent. Moving is exhausting, annoying, and comes with its own costs. I’m ready to settle in one home and lock in a consistent mortgage payment.

Here’s how I plan to save my down payment on my irregular income while becoming a more attractive borrower.

Save Consistently

My income does fluctuate month to month. The thing that doesn’t change is how I save my money. I have pretty fixed living expenses and I save the rest.

I build my budget from my survival number. A survival number is the bare minimum I need each month to get by. It includes things like rent, food, gas, health insurance, and internet. Once I’ve accounted for all the necessities, I add in some of the fun stuff. That includes things like dinner out, Netflix, and new sneakers. $1,400 a month is generally what I need to meet my obligations and enjoy my life.

From there, everything else can head to savings or to other splurges. But for me, right now everything is going to savings. I’ve spent the last year building up my personal emergency fund. Now it’s time to beef up the down payment fund. By sticking with my $1,400 a month budget and socking away the rest, I maintain a financial balance in my life that doesn’t change with my income fluctuations.

Set Realistic Goals

Here are three tactics I’m using right now to save my down payment.

A separate savings account: I opened up a savings account and labeled it ‘Future Home.’ It’s separate from my emergency fund, my travel fund, and my checking account. By keeping my money for my dream house away from money for other goals, I can track how close I am to my goal more easily. Nothing gets mixed up.

Automatic savings: Right now I have $200 pulled automatically each month into that savings account. This way, I know I’m saving at least that much each month for my goal. I manually transfer other amounts of money as I can, but automating savings is a great way to ensure that you keep working towards your goal each month.

Only saving 10%: Traditional wisdom says to put 20% down, but I’m not planning on doing that. Like I mentioned above, it’s a hot housing market in most of the US, and prices may continue to go up. By the time I save 20% of $200,000, the average home price in my market could easily have gone up. Instead of chasing the market, I plan to offer 10% down and get my foot in the real estate door.

Appeal to Lenders

You can make yourself more attractive to lenders by having a high credit score, maintaining a low debt-to-income ratio, and being flexible with how much you put down. A low debt-to-income ratio shows lenders that your mortgage will be top priority, instead of taking a backseat to other debts.

I have a great credit score and no personal debt, which I hope greases the wheels for me. I’ve also got three years of tax returns as a freelancer, and nearly five years of tax returns from a long term side hustle (where I’m a W-2 employee.) While I don’t earn much at the side hustle, the fact that I’ve had this income for multiple years will help show I’m a stable loan candidate.

If you freelance with dreams of home ownership, focus on keeping solid financial records, attaining and keeping a high credit score, and having cash on hand for your offers. It may be hard work now, but will be worth it when you finally have a home of your own.

Kara Perez is a freelance personal finance writer living in Austin, Texas. She is passionate about helping people become financially literate and telling people’s money stories.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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