Help With Mortgage Application In This Specific Scenario

[Anonymous]

Researching for days and can't seem to find anything definitive. I'm getting conflicting information. Can anyone give an opinion on this scenario:

I want to get pre-approved for a mortgage. I'm self employed (Schedule C) and spent the majority of 2020 on unemployment due to COVID. In 2021 I've been back to pretty much my normal pre-COVID income. I could swear that last year I was reading about lenders possibly taking that into consideration (unemployment due to COVID), and that some lenders would consider that factor when applicants could show that they were back to their pre-COVID income for the most recent months.

But after researching and talking to a few lenders and agents now, that doesn't seem to be the case. It seems that lenders are evaluating applicants as if COVID never happened (I.E. using 2 the previous 2 years of tax returns to determine self-employment income).  So naturally that is creating a huge problem for me.

My biggest problem is DTI. So this led me to contemplate the possibility of a co-signer. I have a very close friend who is willing, but I'm not sure if it will help. Again because of some conflicting information that I'm reading. Some articles say that a co-signer will NOT be factored in for DTI calculation if the primary borrower's DTI doesn't meet minimum requirements (43%?). So in my case, having a co-signer wouldn't really help.

So my bottom line question... is that true? Does anyone have any experience or info on this situation?

Scenerio details:

Me:

My middle FICO mortgage score is 816.

I have between 15% and 20% to put down for the price range I would like to have.
My DTI is way too high depending on how my income is figured.

My potential co-signer:

Lower credit score than me (average).

Steady, uninterrupted W-2 income that shows more income than mine. This is what I was hoping would help!

So does anyone have any suggestions on lender(s) that might:

A) Be lenient on 2020 income because of massive COVID unemployment (and maybe just use my 2021 YTD or even 2019 income)?

-OR-

B) Use my co-signer's DTI, or combine both of our incomes for the DTI calculation, even if my DTI doesn't meet the minimum requirements?

Side note - I'm aware of non-qualifying loans, but I don't have enough of a down payment to meet the LTV requirements on most of them.

I'm at the point where the research is just making me more confused. Does anyone have any suggestions?

Thanks!

[Cowboys4Life]

---

So does anyone have any suggestions on lender(s) that might:

A) Be lenient on 2020 income because of massive COVID unemployment (and maybe just use my 2021 YTD or even 2019 income)?

-OR-

B) Use my co-signer's DTI, or combine both of our incomes for the DTI calculation, even if my DTI doesn't meet the minimum requirements?

Side note - I'm aware of non-qualifying loans, but I don't have enough of a down payment to meet the LTV requirements on most of them.

I'm at the point where the research is just making me more confused. Does anyone have any suggestions?

Thanks!

---

A)  I am certainly no mortgage expert but here is my observation.  I cannot think of a responsible lender that would agree to this given that the Supreme Court just struck down the moratorium on evictions.  While most people assume that only is regarding renters it also has kept lenders from foreclosing.  The pending foreclosures from those who remain under or unemployed and cannot qualify for a refinance or to move a year or more of payments in arrears to the back end of the mortgage is going to drastically affect the bottom line.  With the media keeping up with pushing the paranoia and panic regarding "new variants" I don't foresee lenders rushing to overlook unemployement income issues for an entire year for a self employed individual.  Just my opinion others may certainly disagree.

B)  I would not ask a friend to co-sign this loan for you.  NOTHING good can come of it for them.  Can you live with yourself if something goes wrong and you end up in a similar situation as last year and you trash your friend's credit?  Co-signing is about way more than you.  If your DTI is too high then I would focus on reducing that as much as possible.  Right now is not a good time to jump in to most housing markets as they are off the chain crazy.  Prices may level out or drop when the inventory shifts due to evictions and foreclosures.  That gives you time to lower your DTI and acquire a longer period of income that can be verified and relied on by lenders to approve a mortgage.

[CreditInspired]

Hi OP

Two things I notice:

1. The friend would not be a co-signer on the mortgage but a joint owner, which could create financial problems for him/her down the road if he/she wants to purchase his/her own home. 

2. The lender looks at the lowest middle score of joint applicants. So if his/her score is lower, that's the score that will be used. 

[juzcruzzinusa]

Hi, It looks like you have a tough road ahead of you. Lets look at USDA 7 CFR Part 3555 part regarding Income

Paragraph (5)

The following sources of income will not be considered in the calculation of annual income:

 (v) Temporary, nonrecurring, or sporadic income (including gifts);

Since Unemployment is considered Temporary it is not included.

The next thing you mentioned was having someone else cosign for you

The USDA will only allow occupants of the home to be included on the mortgage. If you need to have a Non-Occupant Co-Borrower as part

of your mortgage application, you will need to qualify for a Conventional Mortgage or an FHA Mortgage.

With a Cosigner, you will have to also meet the Combined DTI, and under the Income Ceiling for your area, and the other restrictions USDA

have in place, also depending on the co-barrowers housing history if you still meet the first-time home buyers restrictions.

To me it looks like you have to wait until you have the income history to saitsfy the requirements.

[VALoanMaster]

---

@Anonymous wrote:

Researching for days and can't seem to find anything definitive. I'm getting conflicting information. Can anyone give an opinion on this scenario:

I want to get pre-approved for a mortgage. I'm self employed (Schedule C) and spent the majority of 2020 on unemployment due to COVID. In 2021 I've been back to pretty much my normal pre-COVID income. I could swear that last year I was reading about lenders possibly taking that into consideration (unemployment due to COVID), and that some lenders would consider that factor when applicants could show that they were back to their pre-COVID income for the most recent months.

But after researching and talking to a few lenders and agents now, that doesn't seem to be the case. It seems that lenders are evaluating applicants as if COVID never happened (I.E. using 2 the previous 2 years of tax returns to determine self-employment income).  So naturally that is creating a huge problem for me.

My biggest problem is DTI. So this led me to contemplate the possibility of a co-signer. I have a very close friend who is willing, but I'm not sure if it will help. Again because of some conflicting information that I'm reading. Some articles say that a co-signer will NOT be factored in for DTI calculation if the primary borrower's DTI doesn't meet minimum requirements (43%?). So in my case, having a co-signer wouldn't really help.

So my bottom line question... is that true? Does anyone have any experience or info on this situation?

Scenerio details:

Me:

My middle FICO mortgage score is 816.

I have between 15% and 20% to put down for the price range I would like to have.
My DTI is way too high depending on how my income is figured.

My potential co-signer:

Lower credit score than me (average).

Steady, uninterrupted W-2 income that shows more income than mine. This is what I was hoping would help!

So does anyone have any suggestions on lender(s) that might:

A) Be lenient on 2020 income because of massive COVID unemployment (and maybe just use my 2021 YTD or even 2019 income)?

-OR-

B) Use my co-signer's DTI, or combine both of our incomes for the DTI calculation, even if my DTI doesn't meet the minimum requirements?

Side note - I'm aware of non-qualifying loans, but I don't have enough of a down payment to meet the LTV requirements on most of them.

I'm at the point where the research is just making me more confused. Does anyone have any suggestions?

Thanks!

---

 Hi @Anonymous,

Unfortunately you're in a tough spot.

Fannie Mae guidelines:

Income Trending: After the monthly year-to-date income amount is calculated, it must be compared to prior years’ earnings using the borrower’s W-2’s or signed federal income tax returns (or a standard Verification of Employment completed by the employer or third-party employment verification vendor).

• If the trend in the amount of income is stable or increasing, the income amount should be averaged.

• If the trend was declining, but has since stabilized and there is no reason to believe that the borrower will not continue to be employed at the current level, the current, lower amount of variable income must be used.

• If the trend is declining, the income may not be stable. Additional analysis must be conducted to determine if any variable income should be used, but in no instance may it be averaged over the period when the declination occurred.