Self employed borrowers applying for a mortgage loan can get frustrated because many loan officers do not know how to accurately read tax returns.
Fannie Mae is the largest purchaser of conventional mortgage loans. Since stated income loans no longer exsist it's important to know their requirements.
Here are the guidelines from Fannie Mae:
Income from self employment is considered stable, and effective, if the borrower has been self employed for two or more years.
Due to the high probability of failure during the first few years of a business, the requirements described below are necessary for borrowers who have been self employed for less than two years.
If the period of self employment is between one and two years: To be eligible for a mortgage loan, the individual must have at least two years of documented previous successful employment in the line of work in which the individual is self employed, or in a related occupation.
Note: A combination of one year of employment and formal education or training in the line of work in which the individual is self employed or in a related occupation is also acceptable. If less than one year then the income from the borrower may not be considered effective income.
Speaking of income, the method for calculating self employed income is much different than that of a wage earner. Failure to calculate income correctly can cause your loan to be denied by an underwriter.
Self employed borrowers need a company with qualified loan officers that know how to read self employed tax returns and make a determination of your eligibility before you pay for home inspections or appraisals. Look no further because we can help!
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Hey Nevin, great post. I'll try and stay off my soap box, but it's absurd to me the number of people who can't get a loan because they're self-employed yet make plenty of money... ugh!
Thank you that was very helpful. My clients were told they were qualified for a home loan. We got into contract and 2 weeks later the broker called me and said she had no idea they were on a 10-99 and not a W-2. Maybe my error but my current lender I use would have known that the 1st appointment. Guess what lender I never used again? My clients were heartbroken. They had moved from AZ to CO and in the course of that relocation they had a few months without working as they made the transition.
Good information. Just goes back to the whole premise that we MUST know we're dealing with professionals. I understand Rob's frustration -- we've seen this way too often.
Nevin, well said and good information for many of our clients who are self-employed... even for us real estate agents! ~ Susan
You make it sound so easy Nevin! Sounds like you coast through those files and can tell immediately if they can continue with the process or not!
Rob - Call it the IRS finding a loophole to force business people to pay more taxes. Pay more taxes or do not qualify for a home loan. Sneaky eh?
Sherilyn - Are you serious? That would be the same as my agent not knowing I wanted a condo instead of a single family home. Geez...and I thought we got rid of most of these LO's. Well, many have until the end of the year so maybe they'll be gone. So sorry you got stuck with that!
Tish - Heck I'd even suggest someone who is not a professional but at least has half a clue as to what they are doing!
Susan - Thanks! Your referral is on vacation but when they return I should be wrapping up the refinance of their San diego property. Thank you again Susan!
Renee - It isn't that hard if you know what to look for. I often wonder if some of these LO's read these after a stint at the bar! LOL
And self-employment actually applies to many real estate agents, too, which some agents don’t realize when it comes time to buy a home or a car. It can get very frustrating.