Fannie Mae tightens requirements on self-employed borrowers

by Ryan Smith02 Jun 2020

Fannie Mae is adding requirements to qualify self-employed borrowers, potentially widening the pool of prospective buyers who will need to turn to non-QM loans to finance a home.

As the COVID-19 outbreak impacts businesses, Fannie Mae has announced that it will require additional documentation to qualify self-employed borrowers. While lenders are “encouraged” to apply the new requirements to loans currently in process, they must be applied to loans with applications dates on or after June 11. The additional requirements will be in force “until further notice,” Fannie Mae said in a letter to lenders.

“Income from a business that has been negatively impacted by changing conditions is not necessarily ineligible for use in qualifying the borrower,” Fannie Mae said in the letter. “However, the lender is required to determine if the borrower’s income is stable and has a reasonable expectation of continuance.”

Lenders will be required to obtain the following additional documentation for self-employed borrowers:

  • 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, or
  • 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, and two business depository account statements no older than the latest two months represented on the profit-and-loss statement

“Lenders must review the profit and loss statement, and business depository accounts if required, and other relevant factors to determine the extent to which a business has been impacted by COVID-19,” Fannie Mae said in the letter.