Qualifying for a mortgage, refinancing harder for self-employed

In an interview with the Wall Street Journal, Franco Terango, senior vice president and divisional executive at Bank of America Home Loans, said that tighter lending requirements are eliminating many buyers and homeowners from obtaining a mortgage or refinancing on a home loan. One of the many characteristics that is a red flag for some lenders is whether the borrower is self-employed.

"Banks are requiring more financial documentation from all buyers, but because of the variability in their income streams, self-employed borrowers tend to get a more thorough look," Terango told the source.

Terango said personal tax returns, business tax returns and financial statements are all factored in when establishing the overall viability of a borrower by lenders.

Karen Mayfield, a mortgage sales manager, told the source that lenders will average the last two years of self-employment to derive an income, but if the most recent year is the lowest of the two then only that year may be considered.

In addition, Experian added a section to credit reports showing on-time rent payments, and raised the credit scores of many individuals in 2011. But this year the credit-reporting company plans to add in negative marks such as bounced checks or leaving a lease before it was up. These marks will likely lower credit scores of many consumers, making it even more difficult to acquire a mortgage or loan refinancing, The New York Times reports.

Further, CoreLogic and FICO are also adding payment histories from landlords, payday and nontraditional loans, child support and utility bills to credit scores. If a consumer has a strong rental payment history the new marks will benefit their credit score. Other consumers who have missed some payments will see their scores lower, the source states.

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