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If you’re self employed and were planning on buying a house in 2020-21, you might be wondering whether or not the coronavirus crisis has tanked your well laid plans. While government-backed mortgage giants Fannie Mae and Freddie Mac have announced new standards and document requirements for self-employed borrowers, and most U.S. lenders are expected to follow, you may still be eligible for a home mortgage loan.
If you are self-employed and think you may be eligible for a home loan, now could be a great time to apply. Mortgage rates are low, and not expected to spike anytime soon. You could get a great deal on a home loan if you meet the new requirements.
The typical requirements for self-employed applicants for a home mortgage include:
Formerly, income over the past two years was averaged to arrive at a monthly income. However, if income has dropped significantly in 2020, you may need to show extra proof of monthly revenues to prove that you are capable of repaying your debts.
New rules put in place since the start of the pandemic require self-employed home loan applicants to provide extra documents when applying for a mortgage. You will need to provide either:
These documents will give your lender insights into revenue, expenses, and net income for the current year. All documents must be less than 60 days old at the date of the loan application, and you may need to present newer documents if they are older than 60 days when you are nearing loan approval.
You can definitely still get a mortgage while self-employed during COVID-19. You’ll just need to meet a combination of requirements, which can include the above documentation plus credit score and down payment minimums. As long as an underwriter can be satisfied that you are capable of repaying your debts, being self-employed shouldn’t be an insurmountable obstacle to obtaining a home mortgage loan.
Don’t assume your credit score is too low, or that you don’t have enough for a down payment. The experts at Sammamish Mortgage can help you find a mortgage home loan program that is flexible for your needs and situation. Self-employment doesn’t have to be a barrier to achieving your dreams.
Most people who are self-employed don’t normally qualify for unemployment benefits, but during COVID-19 many restrictions were lifted. You might be receiving a sum of money regularly under the latest unemployment guidelines.
You may also have been able to qualify for the Paycheck Protection Program (PPP). As part of the CARES Act, this federal program empowered the Small Business Administration (SBA) to back forgivable loans to qualified self-employed freelancers and contractors as well as small business owners.
How do these programs affect your ability to get a mortgage while self employed?
In general, unemployment benefits aren’t counted as qualifying income when you apply for a mortgage. It’s considered short term, rather than a stable ongoing income. Lenders want to know you have a regular income so you can mortgage payments on time for years to come. Lenders will only consider your income outside of unemployment benefits.
In most cases, having a loan increases your debt. However, if you are self employed and received a PPP loan, it may be 100% forgivable if you spend it according to guidelines. Most of it is intended for use to replace your earnings, and can be labeled “payroll” and forgiven. The rest can be used for business expenses like rent, utilities, and also forgiven. Since the loan is forgivable, there is no debt for lenders to count against you.
Mortgage rates have been hitting record lows in 2020, and this trend is expected to continue. With many people being laid off or furloughed, homebuyer numbers are down. This means competition is fierce among lenders who want your business.
Even though the rules are a little stricter, if you are approved for a mortgage the benefits of buying (or refinancing) at today’s rates are significant. It’s a good time to explore the possibilities by using our website to:
Before you apply to get a home loan while self-employed, make sure you have your ducks in a row. Gather all of the documentation listed above, and be prepared to present proof of steady income.
You may also want to have a slightly larger down payment on hand. Make sure this money is in a personal account, not a business one. Money in your business account should be earmarked for business expenses.
You’ll also want to check your credit before you apply for a home loan. Your credit score will determine what kind of loan you can get approved for, and can also affect your interest rate and down payment amount. The better your credit, the easier it will be to get preapproved.
At Sammamish Mortgage, we see self-employed homebuyers as an important niche we can confidently serve. With more and more people becoming entrepreneurs and starting their own businesses, real estate and finance companies are innovating to support you in achieving your life goals.
This includes helping you get a home loan while self-employed, and working with you to help you meet documentation requests under the latest guidelines. Being your own boss shouldn’t limit your ability to achieve the American Dream!
Sammamish Mortgage has been in business since 1992 and has been assisting home buyers in the Pacific Northwest. If you are looking for mortgage financing, we are here for you. We have mortgage programs in Colorado, Idaho, Washington, and Oregon. Feel free to Contact us with any questions. If you are ready, you can also easily View Rates on our website. You can also Apply Instantly or get a Rate Quote.
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