Covid-19 restrictions lifted for self-employed home buyers

Paul Centopani
Paul Centopani
The Mortgage Reports Editor
February 9, 2022 - 3 min read

Self–employed mortgages are becoming easier to get

Covid made getting a home loan tougher for self-employed borrowers.

With the pandemic putting so much of their lives and livelihoods in flux, the Federal Housing Finance Agency (FHFA) established guidance to use extra scrutiny with these self-employed home buyers.

As the pandemic progressed, the FHFA updated its policies multiple times. And as of Feb. 2, the restrictions were lifted.

Of course, there are still requirements and documentation you need to provide to get your mortgage approved. But things should be easier for self-employed borrowers than they have been for over a year.

The latest from the FHFA

Whether self-employed or not, borrowers have to meet the same credit, debt and income standards across the board.

Where it can get tricky is income documentation for consultants, contractors, freelancers, gig economy workers and business owners, opposed to salaried W-2 employees. This usually means providing more paperwork (or a longer history of it) to verify cash flows.

However, the latest FHFA Covid lending rule should make it a little easier.

While mortgage eligibility requirements for self-employed borrowers will mostly be the same as they have been throughout Covid, there’s one big difference, according to Jon Meyer, The Mortgage Reports loan expert and licensed MLO.

“The true, real positive impact is that it will now require less documentation — such as 3 months bank statements and evidence of continued payments received [for self-employed borrowers].”

Self-employed mortgage requirements

Self-employed income can vary and the pandemic’s uncertainty made it more important for lenders to ensure stable borrower cash flow.

According to the Feb. 2 letter issued by Fannie Mae, lenders need a year of federal tax returns from 2020 or 2021. If neither are available, lenders must obtain either of the following:

  • An audited year-to-date profit and loss statement reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date
  • An unaudited year-to-date profit and loss statement signed by the borrower reporting business revenue, expenses, and net income up to and including the most recent month preceding the loan application date, and three business depository account(s) statements no older than the latest three months represented on the year-to-date profit and loss statement.

As an example, a year-to-date profit and loss (P&L) statement through Dec. 31 needs to be accompanied by business depository account statements no older than October, November and December.

Those three most recent depository account statements give lenders the support needed to verify the revenue reported on the P&L sheet.

“Otherwise, the lender must obtain additional statements or other documentation to support the on-going nature of business revenue reported in the current year-to-date profit and loss statement,” the Fannie Mae letter states.

As long as you meet these guidelines and showcase steady, reliable cash flow, self–employment shouldn’t be an obstacle to home buying or refinancing.

Qualifying and finding the best mortgage rates

Self–employed borrowers have access to the same loan programs and interest rates as everyone else in the marketplace.

If you’re self–employed and shopping for a home, preparation is your best friend.

In addition to getting the necessary documentation ready, working with an accountant can help you with potential write-offs and possibly amend previous tax returns to show higher income.

Of course, working with a mortgage professional can assist you with finding the best mortgage type and shop for the lowest rates.


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