Self-employed and apply for a mortgage? Here’s what has changed since COVID-19 – archyde

Taking out a mortgage as a freelancer (pre-coronavirus)

Before we get into the changes for freelancers applying for mortgages in the COVID-19 era, let’s go back to the pre-pandemic era.

According to Todd Huettner from Huettner CapitalThe two most important things self-employed borrowers (including freelancers, independent contractors, business owners, and sole proprietorships) needed in the past for mortgage applications were: two years of tax returns and proof that their business was up and running.

“Depending on the point in time, you may have required an unaudited income statement for the company for more than six months in the following year,” says Huettner.

This is exactly what it sounds like: annual financial statements in which all losses and profits of a company are recorded over a certain period of time.

In addition to tax returns and proof that your business was up and running, lenders also had basic requirements for every borrower (self-employed or otherwise), including things like a minimum credit score and a maximum debt-to-income ratio.

“Most people do not realize this and think that there are completely different rules,” says Hüttner. “But the main difference is that as a freelancer you just had to document your income.”

What has changed?

For freelancers who apply for a mortgage, the main thing that has changed is that the need for documentation has increased many times over.

Due to the economic turmoil caused by the pandemic, lenders are taking extra care when it comes to determining who actually qualifies for these mortgages and whether they can realistically repay them.

“In the past, we could just use the previous year’s tax returns,” he says Todd Wells from Sinberg Capital Lending.

“For self-employed borrowers, additional documents are required after COVID. Now we need a profit and loss account since the beginning of the year and commercial bank statements to support the profit and loss account. “

In other words, lenders need a lot more evidence that you are in a good position to take this mortgage, and providing that evidence could be a huge pain to say the least.

This will increase your chances of getting approved

In addition, you do all the usual things to increase your chances of getting admission (ex Boost Your Credit Score and improve yours Debt to income ratio) Freelancers should also be willing to deal with a few additional administrative issues to prove that their income is really what they say they are.

This includes things like preparing those profit and loss statements (also known as the profit and loss statement) and possibly even getting some bank statements to back them up. And while some lenders may allow you to get by on just a verified income statement, it may not be easier.

“Most people have no idea how much time and money it takes to prepare audited annual financial statements,” says Hüttner.

“Most CPAs don’t offer this service – it’s a very specific process with many requirements. The result is that it can cost thousands of dollars and take several weeks or months to complete. “

In today’s hot seller market, taking weeks or months to get approved would simply be out of the question.

It is for this reason that many freelancers (if given the option by their lender) create unaudited income statements and bank statements to prove their income.

Since this can take several hours (and a lot of fishing around your various accounts), it’s a good idea to have these things ready before you need them.

“Let the full and accurate documentation go back as far as possible, 24 months if possible,” advises a former banker. Karen Condor from ExpertInsuranceReviews.com.

“This will prove that you can consistently afford loan payments. The higher your FICO creditworthiness and the more robust your income records, the higher the likelihood of loan approval. “

The last word

Is It Harder For Freelancers To Get A Mortgage Approval In The COVID-19 Era? Yes and no. If your business is consistently doing well and you have the documentation to prove it, then this might be fine.

But if you’ve recently experienced a slowdown or struggling to provide the extra proof of income, getting that mortgage on your dream home may be more difficult than you thought.

Die Post Self-employed and apply for a mortgage? Here’s what has changed since COVID-19 first appeared on Immobilien News & Insights | realtor.com®.