The traditional mortgage application process is tedious — buyers must submit two years of W-2s and tax returns, pay stubs, and two months of bank statements to prove a steady income and their ability to afford a home. But self-employed workers and those who work multiple jobs have a hard time proving their income, leaving them exposed to high-interest loans.
Senators Mark Warner (D-Va.) and Mike Rounds (R-S.D.) are working to change that with the Self-Employed Mortgage Access Act, a bill they presented to the Senate on Aug. 28.
“An increasing number of Americans make their living through alternative work arrangements, like gig work or self-employment,” said Warner in a prepared statement. “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 a W-2 – as someone who works 9-to-5.”
The legislation, if passed, would amend the federal standards for determining monthly debt and income, allowing buyers to submit other forms of paperwork to lenders, including the IRS Form 1040 Schedule C for sole proprietorships, the IRS Form 1040 Schedule F for farming, the IRS Form 1065 Schedule K-1 for partnerships and the IRS Form 1120-S for S Corporations.
National Association of Realtors Associate Commercial Policy Representative Vijay Yadlapati told Inman the Association approves of the bill and plans to release a letter of support sometime next week.
“I think expanding the mortgage credit for responsible people has always been the main goal of NAR,” said Yadlapati. “This bill goes a long way, and not only will it benefit Realtors personally, but pretty much anybody who has rental income, retirement income or is self-employed.”
Despite bipartisan support on the bill, Yadlapati says it may be a while until it’s passed, due to the slew of upcoming elections.
“In this current [political] climate, I think it’s very difficult [to pass legislation] even with both sides of aisle agreeing on something like this,” he explained. “The way legislation works is that [smaller bills] usually gets attached to a bigger, massive bill like tax reform, and I think the constraint that we have right now is the political gridlock.”
“I don’t think it will necessarily prevent this from passing, but I think because it’s an election year, the leadership does not want many big bills to be voted on,” Yadlapati added. “It doesn’t mean that they won’t move something forward, but it’ll be after the elections [in November].”
In the meantime, some mortgage lenders are working on ways to better serve creditworthy, but difficult-to-qualify buyers. In March, Newfi Lending launched Sequoia Portfolio Plus, which offers loan amounts up to $2 million for difficult-to-qualify buyers (including self-employed individuals) with credit scores of 680 and above.
Also, Fannie Mae and Freddie Mac are currently working on solutions of their own, according to a Washington Post article. The leading solution is a platform where self-employed and gig-economy workers can automatically document their income.