There's a new mortgage-refinancing challenge for freelancers: You need to prove the COVID-19 pandemic hasn't savaged your income.
If applying the math convinced you that you should refinance, here’s the challenge for freelancers. The Federal National Mortgage Assn., better known asthat dictate how lenders must assess a self-employed borrower’s ability to repay.
One way is to have the lender look at your current debt-to-income ratio. If that ratio is under 50%, even with your current income, you could still qualify for the loan.How do you calculate your debt-to-income ratio? You look at the minimum payments required on all of your outstanding loans — student loans, credit cards, car loans and mortgages. Add up the minimum payments and then compare the total to your gross income.
For those with plenty of savings, there’s a second option — one that factors in “asset depletion,” Foster says. This loan underwriting process looks at the other assets that the borrower has available and determines whether the borrower can repay the loan by simply “depleting” their other assets over time. Retirement assets are generally not used in this calculation unless the borrower is old enough to tap them without penalty, he says.
It’s worth noting that in 2009, during the last recession, mortgage rules were altered by the Home Affordable Refinance Program, better known as HARP. The program essentially enabled economically troubled homeowners to refinance their existing loan balances to reduce their interest rates but did not let them add debt.
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