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Why The Self Employed Are Facing More Mortgage Scrutiny


The U.S. economy has taken a battering during the COVID-19 pandemic with the mortgage industry being particularly hard hit by the pandemic. Along with the usual tightened checks needed for all lenders because of the restrictions placed on workers by COVID-19, the self-employed are facing the tightest restrictions in living memory.

The OCR has reported the move towards any self-employed person obtaining a home loan has been blocked by Fannie Mae and Freddie Mac with tighter restrictions.

The Problems of the COVID-19 Pandemic.

Before the onset of COVID-19 in the early months of the pandemic, the real estate markets of the U.S. were in a healthy situation. The economy was said to be at its highest in a long time but the crash caused by COVID-19 has led to a downturn of epic proportions. In the last few months, there have been a series of protections put into place to help those who are renting or have a mortgage, but those looking for a mortgage have been left with problems. These problems have been compounded by the decision to make it more difficult for self employed loans to be completed with ease.

A Letter to Lenders.

Forbes explains the problems facing the people of the U.S. are large and the lenders, Fannie Mae and Freddie Mac have recently issued a letter to lenders that details how lenders in their network should work with those who are classed as self-employed. The initial change in the regulations for lenders has been updated on several occasions as new regulations and rules have changed for those who are struggling to prove they can afford a mortgage.

Self-Employed Mortgages.

It has always been difficult for any self-employed person to obtain a mortgage without the aid of a co-signer. However, Freddie Mac and Fannie Mae have introduced a series of new rules and regulations that must be followed by lenders and those making an application. The typical rules that must be followed have remained in place and have been joined by new regulations based around a self-employed person proving their income will continue into the future. One of the most important aspects of the new regulations comes from the fear that the income levels of self-employed people will not be sustainable if the COVID-19 pandemic continues to cause issues through 2020 and on into 2021.

Who is Self-Employed?

This is a simple question to answer because Freddie Mac and Fannie Mae have introduced restrictions and a definition of what it means to be self-employed. If you own a share in a business totaling 25 percent or more you will find you are pushed to apply for self-employed loans because you are classed as owning your own business. This means you will be pushed to complete the latest requirements regarding the business you own to prove you will be able to pay back your home loan in the future.

New Regulations.

When you decide to apply for a mortgage when you are classed as self-employed you will find yourself facing the problem of proving your current income. Perhaps the biggest change to the existing regulations is the need to prove your income levels over the last two months. To do this the latest advice from Freddie Mac and Fannie Mae requires you to bring your last two bank statements to the table to prove that you are earning around the $5,000 threshold for the issuing of a loan. Along with the completion of the loan based on your bank statements, you will also need to add in a profit and loss form for the year to date to prove the negative effects of the pandemic have not affected your business too dramatically.

Is this a Major Change?

One of the arguments from Freddie Mac and Fannie Mae is that the major aspects of the regulations are similar to those that were already in place when the housing and loan crisis of 2008-2009 took place. A major change moving forward has not been made apart from the introduction of the requirement for the last two bank statements to be reported to a potential lender. The 2008 housing crisis had already made it more difficult for self-employed loans to be completed by all potential applicants. For Fannie Mae and Freddie Mac executives, this is simply a way of ensuring the safety and security of the loans they are hoping to complete in the coming months.

Another area that has been tweaked is an aid for those who have been furloughed during the pandemic and are hoping to be part of any loan application. The latest regulations have included a move towards allowing those who are returning to work in the future to be included on all home loans when this return is made official.

No matter what you feel is happening in your business as a self-employed person you should ensure you have made the correct financial declarations to prove your income. Regulations had already been tightened for self-employed individuals meaning they have little to fear from the need to prove their worth in the current climate.