Self-employed borrowers have always had to jump through a few hoops to finance or
refinance their homes. Without a traditional paycheck, lenders look for other ways to
document income. The COVID-19 pandemic has affected many business owners and delayed
tax return filings. As a result, Fannie Mae and Freddie Mac have enacted changes in the way
the mortgage industry processes home loan applications (as of June 11, 2020).

Income Verification

Self-employed borrowers are typically verified by the most recent two years of income tax
filings. As a result of the pandemic, those two years might not give a current or accurate
picture of the borrower’s income. As the borrower is seeking to secure a loan before the next
filing period, underwriters are now requiring a signed Profit and Loss Statement (P&L) from
these borrowers.

Profit and Loss Statements

As part of the underwriting process, self-employed applicants must provide an audited or self-generated P&L statement for the current 2020 period. The statement must not be older than
60 days and must include:

• Expenses
• Net Income
• Business Depository Account Statements (two most recent)
• Business Revenue
In addition, the borrower must provide their most recent personal bank statements which
should support the P&L statement.

Professional Advice

Self-employed loan applicants have always faced challenges when seeking a home loan. Now
more than ever, it’s important to understand the requirements and work with a mortgage
professional to ensure the loan application is packaged correctly with all the needed
documentation. Lenders are still approving home loans, but with these changes put in place to
minimize risk as the mortgage industry works through the challenges of this pandemic.