Self employed? You will have a harder time getting an FHA loan

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Numerous mortgage lenders are increasingly strict about granting home loans during the coronavirus pandemic, and self-employed workers are paying the price. While self-employed applicants have always had additional hurdles to overcome in obtaining mortgage approval, these days, those who are not salaried may find it even more difficult to obtain a home loan.

What it takes to qualify for an FHA loan

At the end of July, the Federal Housing Administration issued new guidelines on FHA Mortgages, indicating that lenders should take additional steps to verify that independent applicants are financially sound. The purpose of the directive, which is expected to remain in effect until at least November 30, 2020, is to protect lenders against borrowers who take out a mortgage and then fail to comply.

To be clear, the lack of a regular, salaried salary doesn’t necessarily make a borrower riskier. But if you’re self-employed, you may need to take extra steps to get mortgage approval by the end of November.

Specifically, be prepared to provide at least one of the following when applying for an FHA loan:

  • Proof of work in progress, like signed contracts or recurring invoices that show you work regularly and have some income to look forward to.
  • Proof of current commercial receipts within 10 days of the date of a mortgage note (which is the date a mortgage is financed).
  • A certificate that your business is open and operational, and a copy of your business license.
  • A corporate website showing current transactions (for example, an appointment planner indicating that you are open for business).

However, many of these guidelines apply to business owners. If you are self-employed but do not own a business, only the first element above will apply. Also be prepared to provide:

  • Two years of tax returns.
  • A letter from your accountant certifying how long you have been self-employed.

The rules are similar for non-FHA loans

If you’re self-employed, it’s not just an FHA loan that you might struggle with. Fannie Mae and Freddie Mac have set similar standards for conventional mortgages, so be prepared to dig up documents to prove to a lender that you are a trustworthy borrower.

You can also help make this point by increasing your credit score and lowering your debt to income ratio. Paying off some of the existing debt can help in both ways.

Finally, make an effort to boost your savings. If you are able to show a lender that you have cash reserves, you may be more likely to qualify for a mortgage even if you are self-employed. At the end of the day, you want lenders to feel comfortable loaning you a huge amount of money, so the more steps you take towards that goal, the greater your chances of having your home loan application approved. .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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