Qualifying Self Employed Borrowers in the COVID world (update)

By
Mortgage and Lending with HomeBridge Financial Services (NJ) NMLS 248937

A few months back I wrote this Blog about Qualifying Self Employed Borrowers in the world of the Corona Virus.  

This is an update to that blog, and Thankfully the guidelines are a little more simplified now

First a little history.  Fannie and Freddie never asked for a P&L (but lenders often did). The vast majority of P&Ls are unaudited, and an unaudited P&L goes against Fannie and Freddie's charters that say they will not do stated income loans.

But Guess what? We need P&Ls now for all Self employed conventional buyers but they must be backed up by business bank statements.

While this is not entirely different than my earlier blog on the the subject, the focus has changed because the original method did not work.  Now the focus is on Gross Revenue on the bank statements, no longer worrying about calculating a net revenue. Lenders will be looking at a 2-3 month stream of Gross Revenue along with the P&Ls and the traditional past 2 yrs Tax Returns to determine the health of the business NOW, not in the past, but how it is currently surviving.

The new worksheets have a few tests comparing the statements to the P&L, Do the Deposits support the gross receipts? Does the P&L income support the AGI from the Tax return? Do deposits and P&L align within 10% tolerance? and is the income stable?

As lenders we must show the income has stabilized. and if the income in 2020 is lower, we must use the lower income for qualifying rather than the past 2 yrs.  If it is business as usual for the client- the focus is more likely to be on the past 2 yrs, but as it has always been, if income is declining we need to use the lower number to qualify.

As an alternative to the bank statements and unaudited P&L Lenders can use an audited P&L prepared by a CPA, but these are not very common because they are very expensive and very time consuming.

Qualifying Self employed borrowers has always been more involved than a salaried borrower, but in the Covid world we have extra guidelines we must follow to be sure the business is alive and well.

Call me for all your residential lending needs!

 

Robert Rauf 
Mortgage Loan Originator NMLS# 248937
http://www.homebridge.com/RobertRauf 
or my blog: http://activerain.com/blogs/rrauf 
Office: (732)908-4868  Cell (732)740-0175 

RRauf@HomeBridge.com 
www.RobertRauf.com
 
 

Since 1987 I have been helping my clients fulfill their dream of home ownership! HomeBridge Financial Services, Formerly REMN, HomeBridge Financial Services is located at 9 Grand Ave, Building 2 Suite A Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.Homebridge.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood 08722 Bayville 08721, 

Comments (1)

Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

This is a great post and thanks for sharing with us!

Feb 10, 2021 08:04 AM