Mortgages For Self-Employed During COVID-19

In this article, we’re going to cover mortgages for self-employed during COVID-19.  Qualifying for a mortgage as a self-employed worker has always come with its additional obstacles, but things have just gotten even more difficult. Due to the economic impact of COVID-19, many mortgage companies have made their borrowing requirements much stricter especially for independent contractors and small business owners.

Mortgage Industry Changes – Early Spring 2020

In early spring, the U.S economy fell into a deep recession that caused uncertainty in several industries including the mortgage industry. As more and more Americans continue to lose their jobs and the unemployment rate skyrockets, lenders have to ensure that they will still receive mortgage payments. In an attempt to make sure that a borrower’s financial stability hasn’t been shaken during the pandemic, many mortgage lenders are requiring additional paperwork.

New Fed Mortgage Requirements

Both Fannie Mae and Freddie Mac announced new requirements for self-employed borrowers that will most likely extend to virtually all lenders. These new guidelines require that self-employed borrowers have one or two documents that weren’t required before:

1. Audited P&L statement
2. Or an unaudited P&L statement with 2 months of business account statements.

Although new guidelines have made the mortgage application a bit more tedious, the incredibly low-interest rates make it a great time to apply for a home loan or refinance.

Federal Stimulus & The Mortgage Industry

The government has pumped trillions of dollars into the economy in an attempt to mitigate the enormous financial impact COVID-19 has had on many independent contractors and small business owners. Stimulus checks and Paycheck Protection Program loans have helped to relive some of the financial burdens of many self-employed workers, but how does it affect mortgages?

PPP Loans & Mortgage Qualification

Although stimulus payments and PPP loans may help to alleviate financial stress, they do not help in the mortgage application process. Lenders will look at your funds in order to determine if your income is stable, but cash from PPP loans will not be considered an asset. This means if your income has decreased significantly in the past few months then applying for a mortgage may be pointless.

It’s Still A Great Time To Buy Real Estate

Despite these new regulations for self-employed workers, if you are financially qualified and want to apply for a mortgage or refinance then this could be a great time. With interest reaching below 3% for highly qualified buyers, speaking to a lender is essential.

If you’re seriously thinking about applying for a mortgage, then you may want to consider a few things. If your business has been struggling or even forced to close at some point, then it may be best to be realistic about your finances and reconsider applying. You should also remember that even if your income has decreased that doesn’t mean you should be completely discouraged from applying as long as the loan is affordable.