Can I get a HELOC if my income is irregular?

Freelance and gig work can supplement your 9-to-5 paycheck or even replace it if you find the right hustle. That could put you on track to reach your big or small financial goals, with no boss to answer to other than yourself. 

One of the quirks of freelance and gig work is that your income might have peaks and valleys. Some months or years may be more profitable than others. 

Lenders know this—if you want to get a home equity loan or HELOC, irregular income isn't a dealbreaker. You may just have to do a little more legwork to verify your income. 

Can you qualify for a HELOC if your income is inconsistent?

It's possible to get a HELOC when you don't have consistent income. One option is to provide more income verification to your HELOC lender. Instead of providing two recent pay stubs, your lender might accept several months or a year’s worth of proof of income. They need assurance that you have enough income to afford your monthly bills. If you can show that you do, even if your income doesn’t come in at the same level every month, you might qualify.

Another option is a no-doc HELOC or stated-income home equity loan. These loans typically carry higher interest rates than traditional HELOCs, but they usually involve less paperwork. 

How does a HELOC work? Here's a rundown.

A HELOC is a flexible line of credit guaranteed by your home. It’s a second mortgage. Just like with a first mortgage, if you don’t repay your HELOC, you could lose your home.

If you qualify, you can use a HELOC for virtually any expense. You could consolidate credit card debt, replace your roof, or cover a major purchase. 

HELOCs have a draw period and a repayment period. The draw period is when you can access your credit line. A typical draw period is five to 10 years. It works like a credit card. You can borrow, repay, and borrow more as often as you like, up to your credit limit. 

Then the repayment period starts. You can’t borrow more. You'll pay back what you borrowed with interest.

Here are a few other things to know about HELOCs:

• Your lender might require you to withdraw a minimum amount from your credit line.

• HELOCs usually have variable interest rates, but some lenders offer fixed-rate home equity lines. (Achieve Loans only offers fixed-rate loans.)

• A traditional home equity loan is another way to borrow. It’s a one-time loan, with no draw period.  

A HELOC could be a good thing to have if you freelance and have irregular income. You could use your credit line in a pinch to cover day-to-day expenses in months when you earn less, then pay it back in months when your income is higher. 

Achieve Loans expert tip: Compare a HELOC vs. home equity loan to decide which is right for you.

What do lenders want to see if your income is nontraditional?

HELOC lenders want to know that your financial situation is stable, even if your income is irregular. Here are the factors that could work in your favor for approval. 

• Past income. A lender isn't just interested in what you made this month. They want to know what your income looks like over several months or even years. Ideally, you can show an overall upward trend in your earnings. 

• Debt-to-income (DTI) ratio. What is DTI? It’s the amount of your gross income that goes to debt repayment and housing each month. This number could be trickier to calculate with irregular income, but the less debt you have, the better. 

• Savings. A little money in the bank could go a long way when you're trying to get a HELOC with irregular income. If you have one to two years' worth of expenses in an emergency fund, for example, you may look less risky to a lender. 

Lenders also consider your credit history and the amount of home equity you have. Your credit history tells a lender how you have managed credit accounts in the past. Home equity is the difference between what you owe on your home and its value. Generally, lenders expect you to have at least 15% to 20% equity to qualify for a HELOC. 

How can you strengthen your HELOC application when your income varies?

Irregular income shouldn't discourage you from applying for a HELOC. Sure, your lender might take some extra time with your application, but there's plenty you can do to improve your approval chances. 

Here are some actionable tasks that could strengthen your HELOC application. 

• Work on your credit. You don't need perfect credit for a HELOC, but every point counts. If you want to add points to your score, pay your bills on time and pay down your credit card debt as much as possible. Keep old credit accounts open, and avoid applying for new credit accounts unless you really need to. Learn how to check your credit score for free.

• Dispute credit report errors. Check your credit reports for errors or inaccuracies. If you come across an error, dispute it with the credit bureaus to find out if you can have that information corrected or removed. Fixing your credit could help you qualify if you had errors that were damaging your credit. 

• Reduce debt. Look at what you owe and choose the debt you could pay off the fastest. Put as much money as you can toward that debt. Once it's gone, repeat the process with another debt. Low debt is good for your DTI, your credit standing, and your financial wellness.

• Save, save, save. Lenders like it when you have money in the bank, especially when your income is irregular. And you might find that you like it, too. An emergency fund is reassuring when a rainy day happens. Review your monthly budget and pick an amount you could save consistently, even if your income changes. Set up an automated transfer to your bank account so you can build savings while you prepare to apply for a HELOC. 

• Make small home improvements. You may be planning to use a HELOC to remodel your home, but in the meantime you could make smaller upgrades that might add to your equity. A little landscaping or a fresh coat of paint could increase your home's value, and these updates don't have to cost a lot of money. 

You can also review your budget to calculate an amount you could realistically afford to pay toward a HELOC from month to month. Learn how to budget with irregular income if you're new to the freelancer or gig work lifestyle. 

What is a stated-income or no-doc HELOC, and does it apply to you?

A no-documentation home equity loan or stated-income HELOC lets you borrow without traditional income verification. That doesn't mean you can get a mortgage without any proof of income at all—it just means you'll use different documents to show what you make. 

So instead of tax returns and W-2s, a lender might ask for:

• Profit-and-loss statements

• Cash flow statements

• 1099 forms that show your nonemployee compensation

• Bank deposits for payments from clients

No-doc HELOCs are designed for people who don't get a steady paycheck because they run a business, freelance, or do gig work. You still have to show that you can repay the loan—you just don't have to do it the traditional way. 

Stated-income loans aren't offered by all lenders, and we're not saying they're easy to qualify for. However, you might research this option if you've had trouble getting approved for a traditional home equity loan because of income verification hurdles.

What if you don’t qualify right now for a HELOC?

If you've been turned down for a HELOC or don't think you'll qualify right now, you still have options for borrowing. For example, you could look into personal loans to find out if they might be right for you. 

A personal loan may be easier to qualify for. You don’t have to own a home (or use it as collateral if you do own one). Personal loan rates may be less than what you'd pay with a credit card. 

If you're interested in a personal loan:

• Check your credit scores.

• Decide how much you need to borrow.

• Compare personal loan rates from three lenders. 

• Use a personal loan calculator to estimate your monthly payments.

And if you're still set on a HELOC, work on paying down your debt and increasing your income if you can. Pay your bills on time and be patient. Your time to get a HELOC will come. 

What's next

• Review your freelance or gig income for the last two years and calculate your average monthly earnings. 

• Use a home equity calculator to figure out how much equity you have and what you might be able to borrow with a HELOC.

• Talk to a Loan Officer. It’s free, won’t ding your credit, and could give you an idea of where you stand.