What If A Lender Says I Do Not Qualify For a Mortgage Being Self-Employed

What If A Lender Says I Do Not Qualify For a Mortgage Being Self-Employed?

Many self-employed home buyers or self-employed homeowners may have felt shut out the past years really since the credit crisis of 2008.  Lets disect why this is and what alternative options are available in today's mortgage market.

Underwriting guidelines since the Dodd-Frank bill do require a lender to verify a borrower's ability to repay the loan.  With a W-2 employee, this is done by reviewing income documentation for the past year or two.  If a borrower is on a salary or hourly wage earner with continued employment expected to last three plus years, this is easily calculated.

For self-employed borrowers, the income must be calculated off of the customers past one or two years of federal tax returns.  Many times, the accountant is looking to decrease the income tax obligation by writing off expenses of the business.  While this lowers the tax burden, it also lowers the net income that is allowed to be used in the underwriter's calculation of income thereby lowering the amount the borrower would qualify for.  

If you have heard that you do not qualify due to this, there are programs available to help qualify for a mortgage for homebuying or refinancing purposes.

Many lenders in the "Non-Qualified" mortgage space are getting innovative with guidelines to help meet the needs of self-employed borrowers. 

What is a "Non-Qualified"mortgage

The term "Non Qualified mortgage" is a byproduct of the Dodd Frank bill.  Mortgage products are now catagorized into "Qualified" and "Non-Qualified" which do not refer to the borrower, rather these are designations given for sale into the secondary market.  Qualified or QM loans are able to be sold into the secondary market through traditional methods such as Fannie Mae and Freddie Mac.  Non Qualified or Non QM, are loans that are ineligible to be sold traditionally and create a market for private securitization.

What Programs Are Available and How Do They Work?

Non QM lenders may offer some of the following programs that will help.  The industry is in a time of innovation so this list may continue to grow or contract dependning on performance of these loans.

  • Bank statement analysis for qualification
  • Asset Utilization
  • 1099 review
  • Debt Service Coverage Ratio

Depending on what each borrowers financial picture is and what the mortgage will be used for will determine which of these programs may be used for qualification.

Due to these loans being securitized on the secondary market through private channels, the terms of these loan products will vary.  Using an independent mortgage broker with professional experience in these markets will allow you to receive multiple offers to compare terms and help with a hew home or refinance.  

For more information on these programs, please check out our mortgage95 Self-Employed Mortgage Solutions page on our website.

* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.