Self-Employed? What You Need to Know if Financing a Home

By
Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI

 

 

Self-Employed?

What You Need to Know if Financing a Home

 

As of June 11, 2020, changes in the processing of SELF-EMPLOYED borrowers have been implemented by Fannie Mae and Freddie Mac ...

Why?


The financial impact meted out by the COVID-19 pandemic.  Uncertainty has befallen many businesses and resulted in a disruption of normal underwriting and lending procedures. 

Many business owners have been/are/will be affected by "fallout" from the COVID-19 virus.  Social distancing, self-isolation(s), and stay-at-home orders have all been put into place as a result of the dangers of the pandemic.  

The Mortgage Industry is one of those that have been affected by the pandemic.  Newly-announced changes have gone into effect as a result of current events.  

Some of those changes that have taken place in mortgage underwriting involve or include:

  • Income Verifications:  Self-Employed borrowers' incomes are typically verified using the most recent two years of income tax filings.  In many instances, as a result of the pandemic, those incomes do not show a current or year-to-date accounting
  • Underwriting:  Mortgage Underwriters need to understand the "true picture" of a Self-Employed borrower's income and expenses BEFORE the next Tax Filing.  That information will need to be generated and documented in what is known as a Profit and Loss Statement (P&L)
  • Previously just recommended:  Now Profit and Loss Statements will be required for Mortgage Underwriting to review and approve loans for all Self-Employed(s) from the Application Dates of June  11, 2020, and after, until further notice  
  • Audited or self-generated Profit and Loss Statements: Borrowers will be required to provide self-generated/and signed Profit and Loss Statements to the current period in 2020.  (P&L must not be older than 60 days old, as of the note date)  

       

     These Statements must include info/reports regarding:
  • Expenses
  • Net Income (Including the most recent month preceding the date of Loan Application
  • 2 business depository account(s) statements (no older than the latest 2 months represented on the year-to-date Profit and Loss Statement)
  • Business Revenue
 
*  Until further notice, the above will be required on all Conventional Loan applications.
 
Mortgage Lenders will require that borrowers provide their 2 most recent bank account statements for review.  
 
 
These statements must support and/or not conflict with the info provided by the borrower in their current year-to-date Profit and Loss Statement.
 
Should supporting information be found lacking in some manner:  The Mortgage Lender is required to obtain additional statements or other documentation that will support the information provided from the current year-to-date Profit and Loss Statement.
 
The above can seem a bit complicated and confusing.  But the message (and my advice) to all Self-Employed considering a mortgage is actually straightforward and clear.
 
Self-Employed Borrowers are well-advised to seek out an experienced and knowledgeable Lender to discuss financing options well in advance of taking any action regarding:
  • The purchase of a home or investment property
  • The refinancing of their present home 
  • The seeking of a business or personal Line of Credit  
 
While this sound advice is always provided wisely, it is especially relevant in today's uncertain business environment.  By following this advice a borrower provides themself ample time to document your business revenues/activities thoroughly and to the best advantage as they pertain to application for financing.  
 
Think of it as "staging" or positioning yourself for loan application ...
 
The more in advance that guidance from a Lender is sought and the resulting actions begin, the better ... and the more easily and quickly you will successfully navigate your mortgage process ...
 
* Are you dreaming of buying or refinancing a home or Investment Property in New Lenox - Will County - Chicagoland - IL or WI?
 
 
Gene Mundt
 
Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI License #216987
 
American Portfolio Mortgage Corp
NMLS #175656
 
 
Direct: 815.524.2280
Cell: 708.921.6331
eFax: 815.524.2281
 
 

 

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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

NMLS #175656

 

Gene Mundt, Mortgage Originator,  40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking:  #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including:  The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin. 

 

Your Referrals & Testimonials are Always Greatly Appreciated! 

 

 

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
Topic:
Home Buying
Location:
Illinois Will County New Lenox

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Show All Comments
Ambassador
4,325,610
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Gene:

Excellent education here for those who are self-employed and in the market for a home and a loan. I'm not surprised there have been changes, given all that's happened. A well deserved gold star!

Jeff

Jun 17, 2020 06:35 PM #4
Rainer
272,785
Richard V. Foster, Esq.
Nevada Perfect Homes - Henderson, NV
Broker (58356) - ABR/M, CREN, CRS, GRI, RRG, SFR

Lending has been a mess for self employed and tipped employees for years. Things were starting to improve, and we had just begun to see the return of bank statement programs... Then POOF, CV19 and all that all but evaporated in Nevada. Oh well, we will have to watch and see what happens from here.

WEAR YOUR MASKS EVERYONE!!!

Jun 17, 2020 09:19 PM #5
Rainmaker
2,897,871
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

All true and great stuff and especially applies to me personally and I think you will help a lot of people with this one. :)

Jun 17, 2020 09:51 PM #6
Ambassador
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Anna Banana Kruchten CRS CRB, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Another excellent guide for understanding the loan qualification process for self employed business owners.  Like you said, it's like 'staging' and presenting ones position and being prepared in advance.  Another knock it out of the park posts by Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi . Thanks Gene!

Jun 17, 2020 10:02 PM #7
Rainmaker
139,854
Kris Collis, Associate Broker
Smart Way America Realty - East Stroudsburg, PA
Professional Results you Expect 570-801-5525

Gene, one of the most applicable topics for Active Rain.  There are a few self-employed in this community. LOL 

Jun 18, 2020 01:04 AM #8
Rainer
299,544
Paddy Deighan JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

Self Employed borrowers always face additional challenges and the blog is timely and informative..thank you for posting

Jun 18, 2020 03:00 AM #9
Rainmaker
2,022,320
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

What are you going to make this year... self employed folks are not as easy to guide through financing options because no one to sign an income statement to set it in stone Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi You sure know your financing products and the latest trends, work arounds to get people in a place of their own! 

Jun 18, 2020 03:54 AM #10
Rainmaker
3,227,078
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Great updates Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi , Keeping good and up to date records is ever so important

Jun 18, 2020 04:43 AM #11
Rainmaker
1,050,874
Nick Vandekar, 610-203-4543
Long & Foster Real Estate Inc 610-225-7400 - Devon, PA
Tredyffrin Easttown Realtor, Philly Main Line

Good information to know for all self empluyed borrowers, thank you.

Jun 18, 2020 05:31 AM #12
Rainmaker
3,094,967
Brian England
Vacasa - Gilbert, AZ
MBA, GRI, REALTOR® Real Estate in East Valley AZ

This is great information for the self-employed of which I am one.  I have recently learned the hard way about fluctuating income not being beneficial for lending purposes.  I am wanting to purchase a second home, but per my 2018 tax returns, I do not qualify.  When my 2019 tax returns are filed, I will easily qualify, but it also reminds me that perhaps I cannot always afford to have a second home and it gives me doubt as to whether I should do it or not, haha.

Jun 18, 2020 07:19 AM #13
Rainmaker
2,285,038
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi - self employed has always been more complex and now it is even more so.

Jun 18, 2020 07:33 AM #14
Ambassador
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Gene this was not welcoming news for self-employed borrowers, but I do not think it was unexpected.  Guidelines have tighten up for everyone, and we can meet the challenge as long as we are on top of and up to date with the changes. 

Jun 18, 2020 08:52 AM #15
Rainmaker
591,528
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Seems like the guidelines are changing so often these days..extra scruntiny 

Jun 18, 2020 01:15 PM #16
Rainmaker
3,618,200
Nina Hollander
Coldwell Banker Realty - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Hi Gene... as always, a timely and highly important topic explained in a way that most anyone "gets it."

Jun 18, 2020 01:28 PM #17
Rainer
10,550
Ron Schrader
Elegant Business Cards - Idaho Falls, ID
High-Quality Real Estate Business Cards

As a small business owner, I've been self-employed for years, and this is one of those things I've often wondered about. I appreciate the info, and I'll have to save it for future reference when I need my next home loan! :)

Jun 18, 2020 01:59 PM #18
Rainmaker
699,896
Debra Leisek
Bay Realty,Inc Homer Alaska - Homer, AK

Great post with so much good information! Always have a good lender to work with you from the start! I really appreciate your outlook and good advice!

 

Jun 19, 2020 01:32 AM #19
Rainmaker
6,040,013
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

This is excellent information to share with prospective mortgage borrowers.

Jun 19, 2020 08:56 AM #20
Rainer
6,849
Lois Rubino
DeLex Realty - Scottsdale, AZ
Associate Broker/RE Agent in AZ

Great information!  I have a question...I'm still fairly new to Active Rain and wonder if I'm allowed to share blog posts?  

Jun 19, 2020 09:51 AM #21
Rainer
135,568
Anthony Kirlew
Group 46:10 Network @ eXp Realty - Gilbert, AZ
Helping You Make Fiscally Sound Choices

Thanks for sharing Gene. This makes sense as times have changed and banks need to ensure that they are making loans that are less likely to default. Sadly, we know we will see plenty of defaults as a result of the pandemic. In our area, delinquencies are already up. From what I understand this might be skewed by forbearance agreements, however, I have spoken to at least one homeowner who simply fell behind.

Jun 21, 2020 08:02 AM #22
Rainer
512,338
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Just curious as to self generating P&L documents, must they be generated by a CPA or licensed professional? What would you typically estimate the financing cost including appraisal for residential properties for self employed business owners? Do you typically advise business owners investing in other properties that rates would be higher and provide a range or guesstimate? Regardless, great post and invaluable information. 

Jun 28, 2020 02:19 PM #23
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