Many self-employed borrowers shutter at the thought of the home loan process. Jumping through hoops and supplying reams of paperwork inspires fear in the mightiest business owners! A self-employed borrower may have to provide additional tax returns, a surplus of bank statements. In addition, self-employed borrowers have in depth underwriting scrutiny to look forward to as well!
Home Loan Process Eased for Self-Employed Borrowers
In the past, self-employed home-buyer’s have been forced to hand over 2 year’s personal and business Federal Income Tax Returns. However, that all changed in June of 2014. Eligible self-employed borrowers do not need 2 years business returns! Removing the 2 year requirement makes the overall mortgage process much easier for self-employed folks. This is a Fannie Mae Conventional loan change and does not apply to FHA, VA or USDA loans.
What Self Employed Borrowers are Eligible?
Fannie Mae is the investor making the life of self-employed borrowers a little easier when applying for a mortgage. Self-employed borrowers with the following characteristics are exempt from having to provide Business Returns:
- self employed for 5 years or more (same business)
- show increased self-employed income over past 2 years
- use their own funds for down payment/closing costs (no business funds)
Their lender MUST be running the loan through DU/Desktop underwriter and they must receive a message stating that tax returns are not required based on the conditions listed above. .
Tax Returns do not necessarily equat to trouble. In fact, many self-employed borrowers benefit from disclosing a full 2 years worth. Now it is important that your lender makes a strategic decision when it comes to including or not including business tax returns. For example, business tax returns may allow your loan officer increase effective income for a self-employed borrower.
By Jeremy House