Self-employed Borrowers and Home Loans: What Are the New Rules?

Are you self-employed and concerned that you won’t qualify for a fixed rate home loan? Although, it is true that qualifying for a fixed rate loan may be more difficult for a self-employed borrower than it has in the past, by no means is it impossible.

Just like with any loan an underwriter looks at the borrower’s ability to repay the loan. The difference with a self-employed borrower is that the borrower carries the risk of their business’ success directly on them. This requires a thorough examination of not only the borrower’s personal credit and income, but also the viability of the business that their income is derived from.

There are a few commonly asked questions from self-employed borrowers inquiring on how to qualify for a home loan:

1. How long do I have to be self-employed before a bank will consider me for a home mortgage?  The general rule of thumb is two years. By the time a borrower has been in business two years it gives an underwriter a clear picture of the cycles of your business.

2. How do I prove my ability to maintain income? The bank will require your last two years of personal income taxes and the last two years of business taxes. Once we receive those taxes we spend time analyzing the income and expenses to give each borrower the maximum credit for income possible.

3. I have heard that the new underwriting rules are so strict that I may not qualify – does it pay to apply? It is true that changes to underwriting guidelines can make qualifying for a mortgage more difficult for self-employed borrowers. The biggest change is a tighter restriction on the debt to income ratio of our borrowers.

There is no cost to apply for a home loan and we will fully analyze your credit and income picture prior to incurring any cost to you. With current interest rates at near record lows, it might be worth taking the time to investigate refinancing or securing a new home loan.  Ultimately, each borrower’s situation is different, but I would encourage you to contact us to discuss your specific needs.  Meet our friendly mortgage lenders: Michelle Knopf, Julie Jacobson and Tracy Engman.

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