Door Opens Wider for Self-Employed Borrowers
Self employed home-buyers expect to have a harder time with the Conventional Home Loan application process. Above all, employment and income history are among the biggest challenges they face. Presently, Fannie Mae has streamlined their self employment requirements. Now they allow self-employed home-buyers to jump through fewer hoops.
Self Employed Borrowers Use Just 1 Years’ Taxes
Of course there is no doubt self-employed borrowers face challenges that other borrowers do not. Most noteworthy is the historical 2 year tax returns requirement, creating unique hurdles for self-employed borrowers:
- Business expenses deducted from their taxable income
- Documenting a 2 year history of income
- Large one time expenses reducing income
- Start up years showing lower income
Up until this point, self employed home-buyers have typically been forced to provide their most recent 2 years Federal tax returns to their mortgage lender. Well, times have changed! Fannie Mae has gone back to their old ways allowing self employed borrowers to provide less paperwork.
Presently, many self-employed borrowers may now supply just 1 years’ Federal Tax Returns for their loan qualification. This breaks a big barrier for those self employed borrowers who would not qualify if 2 years were required. All things considered, although this is GREAT news, the new allowance doesn’t apply to every self-employed borrower.
Which Self Employed Borrower’s Can Provide 1 Years Taxes?
Although a breakthrough for many, at the same time, not every self-employed borrower is able to qualify with just 1 years tax returns. Fannie Mae’s automated underwriting system determines how many years of tax returns must be provided. First and foremost, it is critical to work with an experienced mortgage team so you know you are getting the correct advice. This is especially important during the loan pre-approval phase so that you know ahead of time if you must supply 1 year or 2 years’ tax returns.
Regardless of the number of years tax returns required, most self borrowers will need to document a 2 year self employed history. Learn more about exceptions to the 2 year self employment history.
By Jeremy House