Despite often earning higher incomes, self-employed borrowers have a harder time getting a mortgage than their salaried peers, according to a new study out Thursday. And as the ranks of the self-employed grow, that's hindering the housing recovery.
People whose primary income comes from self-employment receive 40% fewer loan quotes than the average would-be borrower, according to data crunched by real estate website Zillow.
"It's still pretty difficult to get a loan," said Erin Lantz, vice president of mortgages at the online real estate giant. "We think it's even harder for the self-employed."
The biggest reasons why, she said: lower credit scores and more complex paperwork to verify income.
Although many of the self-employed who sought loans through Zillow's mortgage marketplace reported higher income — an average of $145,000 for self-employed home buyers versus $80,000 for others — they were twice as likely to have a credit score below 680.
Many business owners mingle their personal and business balance sheets, Lantz notes, which can dampen credit scores and lead to bigger swings up and down in annual income.
"That can come back and impact your ability to buy a house," she said.
Verifying and tracking that income can mean more work for a mortgage lender too, she said, and many risk-averse banks these days are deciding it's not worth the trouble.
"It's so much more paperwork intensive," Lantz said. "Lenders are wary of going through the extra work it takes to underwrite the self-employed."
But they are a growing slice of the housing market. Nearly 18 million Americans worked 15 or more hours a week as a freelance or independent worker this year, according to a recent study by MBO Partners, which provides services to independent workers. That is up 12.5% since 2011.