Over 7 million Americans have a side hustle in direct retail sales alone. Direct sales is a growing industry which saw a 13.9% increase in sales volume in 2020. Of that 7 million, 6.8 million sold direct sales part-time. Many of the part-time sales associates have standard, full-time jobs. So, making more money is a good thing, right? How could having a side gig possibly hurt you in the home-buying process?
What can go wrong
There are several hidden pitfalls lurking when you receive income from commissions reported on a 1099. The first issue is that you must be in direct sales for two full years to count any of the income for loan qualification, BUT if you show losses on your tax return, those count right away. I have had buyers who had steady W-2 income qualify for less because their direct sales business showed a loss the year they started the business. It basically reduced their regular income for the preapproval process.
Next, many direct sales associates stock up on inventory or pre-purchase merchandise and marketing materials using a credit card. High credit card balances can affect your credit score and the monthly payments will reduce the amount of your preapproval. Between parties and vendor events, it is not uncommon to have large deposits into a bank account. If this occurs during the home purchase process, it could cause delays or issues.
What you can do.
The best thing you can do is talk to a real estate or mortgage professional as soon as you start thinking about buying a home. Many of the hurdles in getting a mortgage with direct sales income are not quick fixes. Your decisions over the course of several years could impact your preapproval.
Regarding income, make sure to file your taxes every year and keep good records. Consult an accountant regarding the benefits and risks of certain tax deductions keeping in mind any future home buying plans.
Keep your credit score in check. Keep balances below 50% of the available limit as often as possible and always pay on time. Keep good records of any large deposits. Don’t switch companies if you are considering buying a home.
The best way to make the most of your side hustle is to know the pitfalls and how to avoid them. Run your side hustle like a business and rely on professionals for advice. Don’t let your side hustle sideline your dreams.