If you’ve recently started your own business, there’s some good news that could make qualifying for a mortgage much easier.

For years, one of the biggest challenges for self-employed borrowers wasn’t having enough income—it was proving it under traditional mortgage guidelines.

Freddie Mac recently updated its underwriting guidelines, and while the change may sound technical, it has the potential to significantly improve purchasing power for many borrowers who have recently become self-employed.

If you’ve left a W-2 job to start your own business, this is definitely worth understanding.

The Old Rule

Historically, Freddie Mac required lenders to be very conservative when evaluating borrowers who had been self-employed for less than two years.

Even if someone had worked in the same profession for years before opening their own business, lenders often had to compare the borrower’s previous employment income to their new business income.

In many situations, lenders were required to use whichever income was lower.

That meant borrowers who were actually earning more money after becoming self-employed could still qualify based on their old, lower salary.

As you can imagine, that sometimes reduced purchasing power substantially.

What’s Changed?

Freddie Mac has removed the requirement that lenders use the lesser of the borrower’s previous employment income or current business income when certain eligibility requirements are met.

Instead, lenders may now use the borrower’s current stable self-employment income, provided the rest of Freddie Mac’s guidelines are satisfied.

This is a meaningful improvement because it allows qualifying income to better reflect the borrower’s current financial picture.

Who Benefits?

This guideline change could benefit a wide variety of professionals.

For example:

• Real estate agents
• Mortgage loan officers
• Insurance agents
• Financial advisors
• Contractors
• Consultants
• Designers
• Engineers
• IT professionals
• Anyone who recently started working for themselves after years in the same industry

If you’ve built a successful business relatively quickly, this update may allow you to qualify for more home than you could under the previous rules.

A Real-World Example

Imagine someone spent eight years working as a software engineer earning $110,000 per year.

They decide to start their own consulting business and, after one year, they’re earning the equivalent of $165,000 annually.

Under the previous guideline, that borrower may have been limited by their prior W-2 income.

Under Freddie Mac’s updated guidance, the lender may now be able to qualify the borrower using the higher self-employed income, assuming all documentation requirements are met.

That difference could dramatically increase purchasing power.

Why This Matters

Many professionals eventually decide to work for themselves.

Some open their own businesses.

Others become independent contractors.

Some transition from being employees to owning small ownership interests in their firms.

Unfortunately, traditional mortgage guidelines haven’t always kept pace with those career changes.

This update recognizes that borrowers who have experience in the same occupation before becoming self-employed often present less risk than someone starting an entirely new career.

That’s good news for today’s workforce.

Documentation Still Matters

Although the guideline has become more flexible, documentation is still incredibly important.

Lenders will continue to review items such as:

• Tax returns
• Profit and loss statements
• Business bank statements
• Year-to-date income
• Business stability
• Prior employment history
• Continuance of income

Every borrower’s situation is unique, so having complete and accurate documentation remains critical.

Don’t Assume You Don’t Qualify

One of the biggest mistakes I see is borrowers assuming they need to wait two full years before speaking with a mortgage professional.

That simply isn’t true.

Depending on your situation, there may be financing options available much sooner than you realize.

Every loan program has different guidelines, and recent updates like this one continue to create opportunities for borrowers who previously may have thought they needed to wait.

The Bottom Line

Freddie Mac’s updated guideline is a welcome change for self-employed borrowers.

Instead of automatically limiting borrowers to the lower of their previous salary or current business income, lenders now have more flexibility to evaluate what the borrower is actually earning today.

For many entrepreneurs, consultants, independent professionals, and small business owners, that could translate into more purchasing power and a smoother path to homeownership.

If you’ve recently become self-employed and aren’t sure whether you qualify, don’t assume the answer is no. Mortgage guidelines change regularly, and there may be more options available than you think.

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