I am an entrepreneur starting a new company (my third) and have been told by a mortgage lender that despite my successful background and ability to put 20% down, that I will have to wait two years before I can apply for a mortgage to show steady income. Are there any alternatives? I am buying in a highly sought-after neighborhood where the risk of the real estate market is considerably lower than most places in America.
My Answer For Self-Employed Home Buyers
Justin, the two-year self-employment rule comes from Fannie Mae and Freddie Mac, the two government-backed organizations (GSE) that provide money for mortgage lenders. The majority of banks and other mortgage lenders use this money; therefore, they must comply with their rules. So even if you have been making $2million/year for an entire year, are putting 35% down, and are buying in the best neighborhood in America, you will not be able to qualify for a mortgage that is backed by Fannie or Freddie money until you have a full 24 months self-employment history.
But, if you can find a lender that has their own, non-GSE money, then you have a shot at getting approved–with a good Letter of Explanation to accompany your loan application.
Another option would be to find a private seller who is willing to carry the contract (act like the bank) himself until you have the two-years. Some sellers don’t need all their cash up front and would like to make 5% to 8% on a short-term loan.
With this information, you will know what to ask right upfront. That way, you’ll save yourself and the loan officer time and emotional stress. The last thing you want to do is to apply all over the Internet, letting lender after lender, pull your credit report, because too many credit report pulls does not look good and present a red flag, in spite of the credit bureaus’ rule that multiple pulls over 30 days won’t hurt your score.