Are There Refinancing Problems That Self Employed Mortgagors Face?

Foreclosure on the Rise. Self-employed borrowers Not Able To Refinance.

Self-employed borrowers may be affected more by the ongoing upheaval in the mortgage industry. Many of them seem to know this fact already. The most asked question from business owners and independent contractors is “How Will I be Able to Qualify for a Refinance in Today’s Market?”

There is no easy answer but I am going to discuss how business owners and other self-employed people can protect themselves from a possible mortgage by locking in fixed rates with flexible payments today and preparing the refinance documentation requirements of tomorrow.

How Much Harder is the Mortgage Market Nowadays?

Many self-employed homeowners are seeing the mortgage market getting tougher on credit scores and are seeing “stated” or “No documentation” mortgage programs being phased out. They allowed thousands of self-employed people to secure and refinance mortgages in the past and are now worried that they may not be able to refinance or buy a new home today or in the near future.

These  are some of the ways in which the self-employed people may become the most prominent victims of what industry pundits are calling  a “mortgage meltdown” referring to a situation where they will be unable to qualify for mortgages they are already in which are for the most part variable.

Compared to other borrower categories, self-employed people and business owners are likely to be categorized under variable rate mortgages which expose them to the risks of the next few years of home prices levelling off or falling and the interest rates rising.


Why is it Getting Tougher?

While it is true that self-employed people and business owners have had it pretty easy up to the Global Financial Crisis (GFC) with loose lending standards enabling many of them, myself included, qualify for loans which would have been rejected by other lenders.

In most cases, self-employed borrowers enjoy a stronger income than their wage-earning counterparts. So, why do banks give self-employed homeowners have such a hard time? It all centers on one word: Documentation.

Self-employed people usually have a hard time producing the type of documentation the bank usually needs from the mortgage applicants. This is because of the fact that underwriting guidelines became significantly stricter in 2008 than the guidelines required before the GFC.

What Would be the Best Strategy?

We cannot cover all of the topics of alternative documentation to business owners within the scope of this article alone because it is a complex topic. However, there are some documentation standards out there now and in the future to enable self-employed borrowers to qualify for refinancing today and continue refinancing in the future.

We will try to do this by giving you five key factors self-employed borrowers can follow to qualify for mortgage refinancing today and in the future.

  • Credit Scoring
  • (LVR) Loan to Value Ratio
  • Provision of Proof of income
  • Provision of Proof of Employment
  • Provision of Proof of Assets and Liabilities

The best thing to do is to look for an experienced professional mortgage broker who specializes in self-employed loans. This is the professional who will walk you through the current requirements. I hope this article has given you some hope of getting a mortgage without having to worry about your self-employed status.