By Robyn A. Friedman
City & Shore Magazine
If you’re in the market for a mortgage, either to buy a house or to refinance, you might find it tougher to obtain financing these days, particularly if you’re self-employed.
“It started with Covid because a lot of self-employed borrowers were under suspicion of not being able to perform,” says Steve Chaney, a loan originator with U.S. Mortgage of Florida in Delray Beach. “While some industries were hit worse than others, like restaurants, bars and retail, and a lot had to close, lenders are tightening up on self-employed especially because so many businesses have been affected.”
Chaney says that some lenders now ask for three months of bank statements, rather than the usual two, and everything is updated right before closing to make sure the business’s status hasn’t changed.
According to the Mortgage Bankers Association, while mortgage credit availability increased in March (the latest month for which statistics are available), it’s drastically below pre-pandemic levels. The Mortgage Credit Availability Index, a report from the MBA, rose by 2.2 percent in April, indicating loosening credit, but in February it was close to its lowest level since 2014. The bottom line: It may be harder to get that mortgage you need.
But there are ways to improve your financial health – and the odds of being approved for a loan. Here are some things you can do:
- Check your credit report. It’s not unusual for there to be errors, but if you obtain a copy early enough, you’ll have sufficient time to correct them before submitting your mortgage application.
- Don’t change jobs. Stable employment – particularly employment that can be easily verified – is vital now since lenders are skittish due to the pandemic. According to Bill Banfield, executive vice president of capital markets for Detroit-based Rocket Mortgage, lenders now may ask for some documents, such as proof of employment, multiple times throughout the mortgage process to make sure the information hasn’t changed.
- Do what you can to improve your credit score. According to credit bureau Experian, you can take the following steps: bring current any past-due accounts, pay down balances on revolving accounts, avoid missing payments and don’t apply for any new credit.
- Get pre-approved. To be a competitive buyer in a very challenging real estate market, sit down with your mortgage lender before shopping for a new home and get pre-approved, not just pre-qualified. “Have them run a DU – [a Desktop Underwriter, Fannie Mae's automated underwriting system for mortgage applications,]” Chaney says. “A lot of sellers, before they accept an offer, want to see the DU findings and not just a letter from a mortgage guy saying they seem to be OK.”
Industry experts remain optimistic. “Despite the pandemic and all that came along with it, more Americans took out mortgages in 2020 than any previous year,” Banfield says. “With stable employment, and some patience, you can buy a home or refinance to a historically low interest rate.”