Bill Would Ease Mortgage Restrictions on Self-Employed

A bipartisan bill on Capitol Hill aims to make it easier for self-employed individuals and small-business owners to obtain a mortgage. Federal lending rules in recent years have made it difficult for the self-employed to qualify for a mortgage, favoring more documentable incomes that can be verified by pay stubs, W-2s, and two years of steady income. That has made it more troublesome for those who work for themselves, earn money at multiple jobs, or have large seasonal swings in their incomes. Currently, self-employed people who qualify for a mortgage may have to accept a higher interest rate or make a larger down payment.

But the Self-Employed Mortgage Access Act, which has been introduced in the U.S. Senate, attempts to expand lenders’ permissible sources to verify incomes beyond current federal qualified-mortgage regulations. Sen. Mark R. Warner, D-Va., who is co-sponsoring the bill with Sen. Mike Rounds, R-S.D., says up to 42 million Americans—or about 30 percent of the workforce—are self-employed or fall within the gig economy. “Too many of these otherwise creditworthy individuals are being shut out of the mortgage market because they don’t have the same documentation of their income—pay stubs or W-2s—as someone who works 9 to 5,” says Warner.

Meanwhile, mortgage financing giants Fannie Mae and Freddie Mac have been exploring ways to underwrite self-employed and gig-economy applicants, such as with automated solutions that could document the incomes typical for such workers.