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Self-Employed Borrowers Mortgage Loans And Underwriting Guidelines

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Self-Employed Borrowers Mortgage Loans And Underwriting Guidelines

This BLOG On Self-Employed Borrowers Mortgage Loans And Underwriting Guidelines Was UPDATED On May 13th, 2019

Given the new federal lending rules and guidelines requiring lenders to verify applicants ability to repay before extending credit, it is easy to understand why self-employed borrowers present special challenges.

  • If a lender chooses to comply with the new qualified mortgage rules, a self-employed borrower must also meet the 43 percent debt-to-income requirement
  • Qualifying self-employed borrowers mortgage loans often require an additional commitment from underwriters in the form of time, energy, and persistence
  • If not for this additional commitment and special guidelines for these individuals, many may not be able to qualify for self-employed borrowers mortgage loans

Self-Employed Mortgage Guidelines

It is important to keep in mind that self-employed borrowers mortgage loans have similar guidelines as other types of mortgages as other programs, including conventional as well as FHA-insured loans.

  • The same loan terms—such as 15- or 30-year terms—are also available to self-employed borrowers mortgage loans

Mortgage lenders generally underwrite their loans based on guidelines established by Fannie Mae, the Federal Housing Administration, or the U.S. Department of Veterans Affairs.

  • Fortunately, these organizations also offer underwriting guidelines for self-employed borrowers mortgage loans
  • Lenders typically follow these standards
  • In addition, some lending institutions have introduced special guidelines for self-employed borrowers mortgage loans

Special Guidelines For Self-Employed Borrowers

In general, the following factors must be analyzed when evaluating a mortgage application from a self-employed borrower:

  • Stability of the borrower’s income (and the absence of significant variability in income)
  • The area and location
  • Nature of business
  • Demand for the product or service offered by the business
  • Financial stability and longevity of the business and market feasibility
  • Ability and potential of the business to continue generating sufficient income
  • Increasing and Declining income will be thoroughly reviewed and analyzed
  • This is important because lenders want to feel confident oft borrower to make the payments on the requested mortgage
  • Marketability of the property that is security for the mortgage as a private residence

Length Of Self-Employment For Self-Employed Borrowers

Lenders typically must obtain a two-year history of the borrower’s prior earnings. This is required in order to demonstrate the likelihood that the borrower will continue to receive this income.

However, individuals who have been self-employed borrowers between 12 and 24 months may still be considered for a mortgage. This is the case that provided the borrower’s most recent federal income tax returns show that he or she received income at the same (or greater) amount from a profession similar to the current business. In this case, loan officers must carefully consider the nature of borrowers experience and the business’s amount of debt.

All mortgage loans will not be extended to self-employed borrowers who have been self-employed for a period of fewer than 12 months.

Freddie Mac does allow self-employed borrowers with only one-year tax returns if the self-employed mortgage loan borrower can get an automated approval per LP FINDINGS. The AUS of LP is the LOAN PROSPECTOR, Freddie Mac’s version of the Automated Underwriting System.

Related> How do underwriters calculate income?

Related> How do underwriters view commission income?

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