Mortgage Rules Eased for Self-Employed Buyers

PASADENA, Calif. – Fannie Mae and Freddie Mac finally eased the two biggest COVID-19 era loan obstacles of the past two years, opening the floodgates for countless self-employed borrowers who were denied loans in the past.

On Wednesday, Feb. 2, the mortgage giants rescinded the rules imposed in June 2020 requiring self-employed borrowers to provide a year-to-date profit-and-loss statement reporting revenue, expenses and net income as well as their most recent two or three months of bank statements.

Fan and Fred required lenders to make sure your current year-to-date income was on par with the previous full year of tax return income. For example, if your previous years’ net income was $240,000 (or $20,000 per month), then the current year’s net income for January through September should be roughly $180,000 (9 x $20,000). If you fell too far below that line, you were deemed to be circling the drain. No loan for you.

If you own 25% or more of your business, or your income is derived from schedule C income through 1099 commission-only income, this means you.

It’s all about risk assessment, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. The powers that be decided the P&L and bank statements provided a good snapshot of your business’ financial health during the pandemic.

And their policies impact mortgage lenders that sell loans to Fan and Fred. Read Full Story Here