Self-employed to face mortgage challenges under new rules

The tighter U.S. lending standards effective this month could make it harder for self-employed borrowers to get a mortgage.

Borrowers are likely to find their income placed under a microscope, the New York Times reported. In the past, two years’ worth of tax returns sufficed, but none of the documentation that many self-employed borrowers used to rely on to obtain a mortgage are acceptable any longer, the Times noted. But under the new rules, lenders must confirm that the borrower has a debt-to-income ratio that does not exceed 43 percent. For the self-employed, this means they will have to submit a profit-and-loss statement and a balance sheet.

Peter Grabel, a Connecticut loan originator, said would-be borrowers should have an underwriter review their financial data first.

“They’re really trying to dig deeper,” Grabel said of banks.

Still, Wells Fargo and other big banks have said they will offer loans that don’t meet the definition of a qualified mortgage, which might help some potential borrowers past muster. [NYT] — Mark Maurer