The number of borrowers that qualify for a mortgage using income derived from self-employment is growing by the day. According to the “Freelancing In America” study conducted by Freelancers Union and Upwork, the number of people who do freelance work will increase from 57.3 million in 2017 to a staggering 86 million in the next decade – and surpass the number of people who do not freelance. A significant contributor to the growing number of freelancers is the group of millennials who use freelance work to subsidize low wages or completely replace their salary. This is a serious issue for mortgage lenders, as millennials – those born between 1981 and 1996 – are projected to surpass the baby boomers in overall population. And, according to the Upwork study, nearly half (47%) participate in freelance work.
This is largely due to relatively flat wage growth and rising household expenses. According to the U.S. Census, median annual household income in the United States in 2016 was $59,039. However, in the same year, the U.S. Bureau of Labor Statistics reported that the average U.S. citizen spent $18,886 on housing expenses, $7,203 on food, and $9,049 on transportation. That means the average U.S. citizen spends more than half (58%) of their annual household income on items considered basic human necessities. The resulting income disparity is motivating millennials to seek out ways to subsidize wages.
Of course, the rise in self-employed borrowers will create a strain on existing underwriting processes which have traditionally focused on wage earners. So what is a lender to do? LoanBeam and Freddie Mac have designed income verification solutions for self-employed borrowers which combine LoanBeam’s OCR and calculation technology with Freddie Mac’s Loan Advisor Suite to extract, calculate, and verify income from borrower tax documents, regardless of file complexity. To learn more about this partnership and the rise of self-employment, visit Freddie Mac’s website.
If you would like to learn more about why LoanBeam has become the trusted leader in income calculation – and how it can improve your process flow, visit LoanBeam.com or sign up for an upcoming product demonstration.
Freelancing In America.(2017, September) Retrieved April 20, 2018, from https://www.upwork.com/i/freelancing-in-america/2017/
Methodology, Assumptions, and Inputs for the 2017 National Population Projections. (2018, March) Retrieved April 19, 2018 from https://www2.census.gov/programs-surveys/popproj/technical-documentation/methodology/methodstatement17.pdf
Nominal Wage Tracker (2018, April) Retrieved April 20, 2018 from https://www.epi.org/nominal-wage-tracker/
Income, Poverty and Health Insurance Coverage in the United States: 2016 (2017, September 12) Retrieved April 18, 2018 from https://www.census.gov/newsroom/press-releases/2017/income-povery.html
Consumer Expenditures in 2016 (2018, April) Retrieved April 20, 2018 from https://www.bls.gov/spotlight/2016/self-employment-in-the-united-states/home.htm