How first-time homebuyers with unverifiable income can navigate the mortgage process

For many first-time homebuyers, the road to homeownership feels straightforward—get your financial documents in order, qualify for a mortgage, and move into your dream home. However, the mortgage process can get a little more complicated if your income doesn’t fit the traditional mold—maybe you’re self-employed, earn rental income, or have side gig earnings. The good news is there are options designed to help people in your situation secure a home loan.

Understanding unverifiable income
Mortgage lenders typically want to know that you can repay the loan before they will lend you money to buy a house. They usually ask for documents like W-2s, tax returns, and pay stubs to verify your income. However, providing the necessary documentation can be challenging if you don’t receive a regular paycheck or your income comes from multiple sources. For example, rental income, side hustle earnings, or gifted down payments can all be more complicated to verify.

If you’ve run into this roadblock, you’re not alone. About 12% of homebuyers in 2024 were denied a mortgage because a lender couldn’t verify their income, according to the 2024 Profile of Homebuyers and Sellers report by the National Association of Realtors. But don’t give up just yet. There are alternative options available to help you secure a loan.

A solution for self-employed and non-traditional income earners
One option to explore is a non-qualified mortgage (Non-QM loan). Unlike traditional loans that rely on W-2s and pay stubs, Non-QM loans allow lenders to verify income through methods like bank statements or 1099s. This makes them an excellent choice for self-employed individuals or those who earn income from investments or side jobs.

While Non-QM loans provide more flexibility, there are some trade-offs to consider. These loans often come with slightly higher interest rates and may require larger down payments or higher credit scores. In the first half of 2024, the average interest rate for a 30-year Non-QM loan was 6.7%, compared to 6.4% for a qualified mortgage, according to CoreLogic data. But for many, the flexibility to qualify is worth the extra cost.

A stepping stone to conventional loans
It’s important to remember that a Non-QM loan doesn’t lock you into a higher rate forever. As you establish a steady income history, you can refinance into a more traditional loan with better terms. Non-QM loans can be a helpful “stepping stone” toward homeownership, allowing you to buy your first home now and improve your mortgage terms.

Next steps for first-time homebuyers
If you’re a first-time homebuyer with unverifiable income, speak with a mortgage loan advisor at PRMI. They can help you understand the best loan options based on your financial situation and guide you through the process. With the right strategy and support, homeownership is within reach, even if your income doesn’t follow the traditional path.