Mortgage guidelines are not as straight forward for self-employed individuals as they are for wage earning borrowers. You will almost always have to jump through hoops, and you never get the benefit of the doubt when it comes to documentation or qualification.
Now I know that is not what you want to hear right off the bat…but the good news is, all hope is not lost!
The most challenging thing about getting a loan undoubtedly is the shopping process. Ask anybody and they will agree that the process of having to make multiple phone calls and have detailed conversations with strangers that you are not entirely convinced are qualified to get the job done can be daunting and something worth averting.
Any loan that fits into the Fannie Mae or Freddie Mac guidelines is driven by an automated underwriting certificate. This AUS dictates what documentation must be submitted to prove everything you as the borrower are claiming to be accurate on the application. Two years tax returns + 4506 transcripts are mandatory nowadays. Along with your returns, depending on what kind of business you have, you will have to provide an operational license along with either a P&L (profit & loss) statement that highlights the amount of earnings or bank statements showing you earnings for the previous year. The rule of thumb is always two years of consecutive income. If last year was stronger than the year before, the guidelines will dilute your income by including the weaker year. If you were stronger two years ago vs last year, they will take a 24-month average. In other words, the underwriters will always take the more conservative and safe approach.
With the economy battling through a global pandemic, naturally investment bankers pumped the breaks on endorsing certain types of borrowers and certain types of loans while increasing the level of qualification on others. As a result of this, the volume of lenders out there who were once able to lend to SE borrowers have now taken a more timid and conservative approach to the matter. The philosophy of lenders’ is to be risk adverse and bearish as opposed to speculative and bullish. This means waiting & watching and only getting involved in the “no-brainer” applications where the decision is obvious from the get-go. The applications that require digging, proving, and justifying have the lowest propensity of approval due to the magnitude of risk that might be associated with them. The key is to work with an institution who is aware of these preferred and unpreferred risks to ensure time is not wasted presenting applications with no likelihood of approval, thus avoiding consumer dismay. This type of dismay will prevent and kill the willingness of the consumer to participate in the free market of services and enterprise due to their past disappointments.
Working with a lender who recognizes this ahead of time is probably more suitable to make the process simple vs one who has limited experience and is doing their best to figure it all out. At your expense, the lender takes on trials and tribulations which leaves you vulnerable to disappointment.
