San Diego, CA (PRWEB) March 07, 2014
LoanLove.com is a borrower advice website that provides up to date and in depth information in a format that is valuable to the most experienced home owners while still being accessible to those who are just starting out with applying for their first home purchase loan. The website, which has quickly become a trusted destination for current news and expert loan advice, empowers homeowners with first class knowledge, valuable resources, and connections to top rated industry professionals. Recently featured on the loan advice website is a new article that delves into details and challenges of obtaining mortgage for individuals self-employed in 2014.
The article starts off by saying, “Whether newly at the helm or a veteran entrepreneur, business owners hoping to buy a new home this year could find rough waters ahead. Mortgages for individuals self-employed in 2014 are likely to fall under even greater scrutiny than in the past. Congress passed the Dodd-Frank Act of 2010 to avoid another financial crisis. The measure addressed a number of issues, including the predatory loan practices behind the housing market meltdown. The new mortgage lending rule, including guidelines to assure a borrower met standards for the necessary Qualified Mortgage (QM), went into effect Jan. 10, 2014, and is designed to keep consumers from being approved for mortgages they cannot repay. The rule raises the bar for consumers to qualify for a mortgage loan, with the requirements even more challenging for the self-employed.”
Loan Love explains that it has always been a bit more challenging for self employed borrowers to get approved for their loans. This is because it can be very difficult to verify their income without the benefit of being able to show a few year’s worth of W2s. Borrowers who are self-employed are also at a disadvantage because lenders look at net income rather than gross income. This means that the tax deductions that self employed individuals usually avail of when tax time comes around can really harm their status in the eyes of mortgage lenders who use tax returns to verify income.
The article explains how the financial criteria under the new QM rules would affect self-employed borrowers. It says, “Stipulations found under the new QM rules apply to lenders expecting to sell mortgages on the secondary mortgage market to Fannie Mae or Freddie Mac, which applies to the majority of lenders. Lenders must be able to verify several financial criteria designed to determine if a borrower will be able to repay the loan. The rules goes so far as to allow consumers to sue lenders who fail to properly verify the prospective borrower’s financial information, so there is great incentive for lenders to adhere to the guidelines. One of the critical steps involved is for the prospective borrower to provide a list of assets, a recent credit report, credit scores and evidence of other debts.”
The article goes on to explain that borrowers who are self-employed have already found it difficult to obtain mortgages under previous stipulations and will likely find it even more difficult under the new requirements. Most importantly the “ability to repay” feature of the new QM rules would be difficult to meet, since most people in this situation have variable income from month to month and usually rely on cash reserves to get through slow periods.
Loan Love says, “Unless the prospective borrower can demonstrate stable or, better yet, increasing income, his or her chances of obtaining a mortgage under the new rules now in effect could be slim. Under the new QM rules, it’s questionable how much leeway lenders might feel they have, or how willing they might be to use it, to make decisions regarding mortgage loans for self-employed individuals. Unfortunately, the current economic and political environment would suggest lenders are not likely to go too far out of their way to qualify borrowers who have anything but a pristine financial history and easily verifiable income. Most lenders will not be willing to risk running afoul of secondary mortgage market guidelines.”
For more information on mortgages for self-employed individuals in 2014, please visit LoanLove.com to read the full article.