When a self-employed borrower applies for a mortgage loan, there are additional layers of scrutiny that they will face due to a tightening of credit in the capital markets. While entrepreneurs are the backbone of the American economy, they are also held to a higher standard when it comes to qualifying for mortgage loans.
Due to COVID-19, and the subsequent state of the economy, the capital markets which dictate creditworthiness for borrowers have changed drastically by getting tighter. When there is an economic downturn, self-employed borrowers typically deal with the challenges of tighter credit standards first. With COVID-19 the mortgage industry is already dealing with process delays now more than ever. Applying for a mortgage while being self-employed requires more time, effort, and documentation compared to someone who is employed. Additional documentation includes:
- Needing two years of tax returns
- If you are a partner, a member of a limited company, or incorporated in business, you are required to provide a year-to-date profit & loss statement and a balance sheet
- A letter from a tax preparer verifying the borrowers’ self-employment may be necessary
- Two years of self-employment history in the same business for the income to be considered qualifying income
Although self-employment makes mortgage financing more difficult to achieve it is not impossible. It is important that borrowers are informed, organized, and prepared to provide any additional documents needed.
Loan approvals do vary depending on the mortgage lender. Some mortgage lenders do not have the ability to handle self-employment loans while others may worry that self-employed borrowers are at greater risk to go into default. At Bluefire Mortgage Group, we go to great lengths to offer the best options possible for anyone who is self-employed.
If you are self-employed and interested in purchasing or refinancing a home this year, we are happy to provide you with a free consultation. With constant changes to loan and credit guidelines, Bluefire Mortgage Group understands this process and is ready to help self-employed borrowers procure a mortgage loan of their liking. Call us today at (760) 930-0569 to learn more.