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

By Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

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

June 17, 2020 12:41 PM

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

gmundt@goapmc.com

www.genemundt.com

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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

Jeff Dowler, CRS

Thank you, Jeff Dowler, CRS ... and it proves that you must work with seasoned professionals, such as yourself, that are active in the current market to receive the timely service needed. They will be the pros that are on top of all the changes that are taking place ... Gene

Jun 18, 2020 07:20 AM

Richard V. Foster, Esq.

Law Office of Richard V. Foster - 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

Richard V. Foster, Esq.

Self-employed can be challenging, no doubt about it, Richard V. Foster, Esq. ... and COVID didn't help in that regard. Hopefully, this is short-lived ... we will see ... Gene

Jun 18, 2020 07:21 AM

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

Laura Cerrano

Yes, many here can be affected, Laura Cerrano ... both personally and professionally ... Gene

Jun 18, 2020 07:22 AM

Anna "Banana" Kruchten

HomeSmart Real Estate - 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

Anna "Banana" Kruchten

Thank you so much, Anna Banana Kruchten Arizona's Top Banana! ... you're always so kind and supportive. It's noted and appreciated. The point I try to make regarding "staging" can't be emphasized enough. Especially in this specific type of financing ... Gene

Jun 18, 2020 07:23 AM

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

Kris Collis, Associate Broker

Ha! True ... for both professional and personal reasons, this might be good to know ...

Gene

Jun 18, 2020 07:24 AM

Paddy Deighan MBA JD PhD

http://www.medicalandspaconsulting.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

Paddy Deighan MBA JD PhD

Thank you for commenting, Paddy Deighan JD PhD ... and hopefully the post proves helpful ...

Jun 18, 2020 07:25 AM

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

Andrew Mooers | 207.532.6573

The early intervention and guidance by an LO can prove immensely beneficial to a self-employed making mortgage application, Andrew Mooers | 207.532.6573 ... I can't stress that enough. Hoping that this particular portion of my post gains attention and traction ...

Gene

Jun 18, 2020 07:27 AM

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

Scott Godzyk

You can't emphasize that message loudly enough, Scott Godzyk ... thank you! Gene

Jun 18, 2020 07:28 AM

Nick Vandekar, 610-203-4543

Realty ONE Group Advocates 484-237-2055 - Downingtown, PA

Selling the Main Line & Chester County

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

Jun 18, 2020 05:31 AM

Nick Vandekar, 610-203-4543

Thank you, Nick Vandekar, 610-203-4543 ... I'm hoping it proves helpful ... Gene

Jun 18, 2020 07:28 AM

Brian England

Ambrose Realty Management LLC - 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

Brian England

It's my opinion that there is truly value in holding a discussion with an experienced LO regarding your overall financial status and plan, Brian England .. much can be discovered during those talks. And action(s) can be put into place to position yourself better for the future. It's what I hope I bring to the table for my clients. Sounds like you had a productive talk with your advisor/LO too ... and that is good as you move forward financially ...

Gene

Jun 18, 2020 10:50 AM

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

Grant Schneider

You're right, Grant Schneider ... self-employeds face a few more challenges. But with pre-planning and good documentation, much can still be accomplished. Knowing that is key ...

Gene

Jun 18, 2020 10:51 AM

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

George Souto

Knowledge of the existence of these changes is key, George Souto ... you're absolutely right. Self-employeds should stay in touch with their LO to see how this affects them ... and how to react to the changes. We can be of great assistance ...

Gene

Jun 18, 2020 10:54 AM

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

Mary Hutchison, SRES, ABR

You're absolutely right, Mary Hutchison, SRES, ABR ... things are moving quickly. I'll try to keep everyone here on AR as up-to-date as possible to help facilitate business.

Gene

Jun 19, 2020 09:02 AM

Nina Hollander, Broker

Coldwell Banker Realty - Charlotte, NC

Your Greater Charlotte 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

Nina Hollander, Broker

As with real estate being "location location location", mortgages ... and especially self-employed applications ... must be "documentation documentation documentation". And it all must make sense and ring true, Nina Hollander ...

Gene

Jun 19, 2020 09:03 AM

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

Ron Schrader

Will do, Gene!

Jun 19, 2020 03:10 PM

Ron Schrader

It's a compliment that you will do so, Ron Schrader ... feel free to reach out with any questions, should you have any ...

Gene

Jun 19, 2020 09:04 AM

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

Debra Leisek

And I appreciate your kind comment, Debra Leisek ... thank you so much ...

Gene

Jun 19, 2020 09:05 AM

Roy Kelley

Retired - Gaithersburg, MD

This is excellent information to share with prospective mortgage borrowers.

Jun 19, 2020 08:56 AM

Roy Kelley

Thank you, Roy Kelley ... I hope it proves useful for many ...

Gene

Jun 19, 2020 09:05 AM

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

Lois Rubino

Thank you, Gene Mundt...I appreciate your response!

Jun 24, 2020 10:41 AM

Lois Rubino

First ... welcome to AR!! Hope to share more with you in the future ...

And regarding sharing ...

You can "share" easily, via the social media logo/links above, Lois Rubino ... very easy to do and much appreciated, I'm sure. I hope you find me as many places as possible (and share) on social media!

As for "sharing" them on your AR blog, etc? Re-blogging is a great idea and again ... very appreciated. "Sharing" elsewhere? It would probably depend on the AR Member, as to whether they wished you sharing in that format. In each specific case, I would contact the AR member directly to ask permission. That way you know for sure that you are responding to their wishes and there are no conflicts moving forward. As long as the original blogger is given kudos/credit for the post, I think most would appreciate the share. But again, checking with the AR blogger first is the right thing to do.

Great question! Good Luck!

Gene

Jun 24, 2020 09:40 AM

Anthony Kirlew

Group 46:10 Network @ eXp Realty - Gilbert, AZ

Helping You Make Fiscally Sound Real Estate Deals!

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

Anthony Kirlew

I think you're right, Anthony Kirlew ... we're going to see a wide range of actions and "fall out" from this pandemic. And unfortunately, it's to a great extent ... unchartered waters, at least as lenders go as we move forward and must analyze and assess credit history, etc. Interesting times!

Stay healthy ... stay safe!

Gene

Jun 24, 2020 09:43 AM

Kimo Jarrett

Cyber Properties - 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

Kimo Jarrett

Kimo Jarrett ... thanks so much for asking these questions. It shows that your interest in the topic is deep. There is great satisfaction in knowing that I wrote on a topic that resonates like that.

I want to break down my answer(s) so they address your questions properly ...

Question 1: P& Ls do NOT have to be audited or prepared by a CPA, accountant, etc. However, if a SE Borrower prepares his/her own P & L, they must sign the form, provide the last two months of Bank Statements for the business and personal accounts to support the Income/Expenses reported within that Profit and Loss Statement.

Question 2: Financing Costs for a Self-Employed Borrower are the same for ANY Borrower, as is the appraisal, and all costs are according to the type of Financing and purpose of the loan requested. Closing Costs vary from state to state, municipality to municipality, so I'm unable to give figures/answers regarding that portion of the question.

Question 3: ANY And ALL Borrowers looking to purchase Investment Properties (not their Personal residence) will be facing either a higher Interest Rate OR higher Closing Costs as Lenders protect their interests by assessing risk, and Risk is greater (in theory and in reality) with the performance of loan repayments on NON-Owner Occupied Property Loans.

Hope what info I provided proves useful moving forward. If I didn't address something to the extent you need ... or if you have further questions, give me a shout.

So sorry it took so long to answer, Kimo. I honestly have not even looked at AR over the last few days. New clients and challenging closings have taken precedent and the great bulk of my time and attention. Thanks again for the questions ... always love receiving them ...

Gene

Jul 02, 2020 01:19 PM

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