New Mortgage Regulations Will Have Greater Effect on the Self-Employed

Househappy

mortgage-rates16New federal regulations requiring lenders to verify an applicant’s ability to repay may make it more difficult for borrowers who are self-employed to obtain a mortgage. The rules, created by the Consumer Financial Protection Bureau, set standards for mortgages that are considered low-risk for both parties.

Effective this month, lenders are now required to verify a borrower’s income and confirm a debt-to-income ratio of 43% or less. Borrowers who are self-employed or own their own business will find their incomes being analyzed in greater detail.

According to Peter Grabel, a loan originator at Luxury Mortgage, in Stamford, Connecticut, borrowers who have been self-employed for less than two years will find it nearly impossible to obtain financing without sufficient business tax returns.

“[Lenders] must establish the stability and continuity of the income source,” he said. “The problem for self-employed people is that they want to minimize their tax liability, but some of…

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