Pitfalls of Self-Employed Income in The Current Mortgage Process
This blog is being written to help Self-Employed borrowers know what to expect when trying to get a mortgage in the post COVID 19 market. Fortunately, the calculations have stayed the same, however Fannie Mae and Freddie Mac have each added an additional level of scrutiny when finalizing the self-employed net income.
Fannie Mae has enacted the following changes to their income analysis of self-employed income:
First Fannie Mae has now started requiring Profit & Loss (P&L) for the current year on all files and this P&L has to include dollar figures for the most recent month prior to submission. This P&L has a few stipulations of its own, first it has to be audited by a CPA, and this can be somewhat expensive.
If you don’t show a CPA audit, you are required to show three months of business bank statements that demonstrate deposits that average out to the gross income reported on the P&L.
Secondly if any PPP loans or small SBA loans are reported on the P&L, they will have to be deducted from the net income number and income will be affected equally.
Also the approval departments will want to verify that current COVID markets do not affect your business and bottom line numbers. The approval department may request an updated business plan that accounts for the affects of the new post COVID markets, they will also search your company online to determine if your product or service is still in demand, so there are a lot of moving parts to this.
If your business was negatively affected by COVID, but has since returned to a new lower level of revenue, the approval department has the ability to reduce income to a new level and qualify your loan with the new reduced income. They can also request month-to-month P&Ls to show an increasing level of revenue each month proceeding COVID, to show that your business is getting back on track.
Freddie Mac has similar requirements for their self-employed guideline overlays with the addition of an intentional business expense review to confirm that P&L numbers are accurate.
If you are self-employed and need someone to help decipher this information and work closely with you to make this process easier, contact us at Blink Lending. We work with a ton of self-employed folks in and around Houston and look forward to the chance to help you secure a new home loan.
Call us at 713.462.5465 today.
