Lending guidelines can change. During COVID we have seen some significant changes in tightening and availability of credit like we saw in 2008. Housing is strong, the stock market is holding its own, interest rates are at historic lows yet the pressures of unemployment in America, the coronavirus pandemic haunting us and homeowners filing for forbearnace all weigh in on mortgage lending guidelines.
Recently as of June 2020, we have new “Temporary” guidelines for self-employed mortgage applicants. Due to the continued impact of the COVID pandemic on economic conditions and businesses throughout the country, lenders have additional temporary requirements when assessing income derived from self employment in order to determine if the Borrower’s income is stable and there is a reasonable expectation of continuance.
The new word in lending for self-employed individuals is STABLE. Is the income stable?
Mortgages are still available however its harder for self employed applicants to get approved and show “stable” income depending upon the nature of their business and where they are in the country.
Due to the pandemic’s continuing impact on businesses throughout the country, lenders are now required to obtain the following additional documentation to support the decision:
• an audited year to date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date; or
• an unaudited year to date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and two business depository account(s) statements no older than the latest two months represented on the year to date profit and loss statement.
• For example, the business depository account statements can be no older than Apr. and May for a year to date profit and loss statement dated through May 31, 2020.
• The underwriter must review the two most recent depository account statements to support and/or not conflict with the information presented in the current year to date profit and loss statement.
Otherwise, the underwriter must obtain additional statements or other documentation to support the information from the current year to date profit and loss statement.
NOTE: The year to date profit and loss statement must be no older than 60 days old as of the note date consistent with current Age of Documentation requirements.
Underwriters must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID 19.
Calculating income for self employed is complicated at best for lenders and now these added requirements cause some uncertainty to ensure the applicant has stable income.
We are still underwrtitng and approving these loans daily, however I thought it was important for you to know whats going on if you’re self employed applying for a home loan and the lender asks you for all sorts of extra items. Now you know why…
If we can help or you have income questions, please reach out.
Mortgage Advisor, CMPS