Agencies Retire COVID-19 Requirements for Self-Employed Borrowers

If you are a borrower, you should be rejoicing about the recent announcements from government-sponsored entities and Freddie Mac.

As of February 02, 2022, the two entities have made a tactful decision to retire a large chunk of COVID-19 temporary requirements, making it much easier for borrowers to qualify for a new loan.1

What does Agencies Retire COVID-19 Requirements for Borrowers mean for you?

Most of the changes relate to what documentation lenders must obtain and analyze to ensure a business has sufficient earnings and liquidity to be used by a borrower for repayment of any new debt.

The updates were issued just days after economists boasted about the sizable expansion of the country’s gross domestic product (GDP). For the last quarter of 2021, the U.S. economy grew by approximately 6.9%, much higher than expectations.2

Positive economic factors aside, not all the temporary COVID-19 requirements were eliminated. Some pertaining to self-employed borrowers remains in full effect. If you are a self-employed borrower ready to buy a new house or refinance your existing mortgage, here is a quick recap of the agency updates.

Old COVID-19 Guidance for Self-Employed Income

Self-employed income continues to be a source of variable income that you can use to qualify for a new mortgage. However, when COVID-19 first became prevalent, adverse effects to the national economy made it difficult to understand the impact to small businesses at a micro level.

The reliability of business earnings depended a lot on the nature of the business, consumer demand for its goods or services, and its overall operating structure. Furthermore, market volatility made it possible for trends to switch with the blink of an eye. Businesses could be doing good one month and poorly the next.

As a result, and Freddie Mac implemented additional overlays to better identify the solvency of business and to determine the impact COVID-19 (if any) on earnings.

These requirements included providing lenders with a signed year-to-date profit and loss statement, which must cover the period leading up to the most recent month prior to the application and be no more than 60 days old at closing. You would also need to provide three months’ business bank statements corresponding to the last three months listed on the YTD P&L. Other documents could be required at the lender’s discretion.

Lenders would need to analyze these financial documents in conjunction with the most recent two years of personal and business tax returns to determine an average income calculation. The lower, more conservative figure must be used for qualification.

Other factors related to business stability would also need to be taken into consideration. Lenders must also verify the business is still open and operating prior to close.

New Updates to Self-Employed Income

Both government-sponsored entities announced that they have retired a portion of the temporary COVID-19 requirements regarding self-employed borrowers under certain parameters.

If you are a self-employed borrower, under the revised guidance you will no longer need to provide a YTD P&L statement or three months business bank statements. Personal and business tax returns (and W-2s where applicable) are still required.

Keep in mind this rule only applies to loans where the most recent tax return being used for documentation is 2020 or newer. In some cases, two years tax returns (both personal and business) may be required.

This means that if you have not filed your 2021 tax returns and are stuck using 2020-19, the previous guidance still applies. This also means that if you choose to file a tax extension for 2021, you may also be forced to comply with the prior guidance.

It’s also important to note that some guidance related to self-employment is not being retired at this time. For example, lenders are still required to comply with the temporary requirements involving verifying if a business is currently open and operating prior to closing.

Documentation that can satisfy this requirement include, but are not limited to:

  • Evidence of current work (such as an invoice or billing statement)
  • Copies of current receipts for payment for goods or services provided
  • Lender’s certification the business is open via a phone call, drive-by, or by other means
  • Verification via the business’s website is actively taking appointments, scheduling service calls, and taking on new clients

Key Takeaways when Agencies Retire COVID-19 Requirements for Self-Employed Borrowers:

Owning your own business comes with its fair share of challenges. You shouldn’t have to also jump through additional hoops to obtain a new mortgage.

Both and Freddie Mac seem to have recognized that the economic impacts from COVID-19 are beginning to settle. As markets stabilize, it’s a tactful decision to retire a good chunk of the temporary COVID-19 related requirements for self-employed borrowers.

If you can provide documentation that meets the minimum age requirements, effective February 02, 2022, you no longer need to provide additional financial documentation regarding the solvency and stability of your business.

Keep in mind that some factors have not changed including the pre-closing business verification requirements, making sure the business is open and functioning like normal.

These recent changes should make it easier for self-employed borrowers to qualify for conforming solutions without getting crushed in mountains of paperwork.

1 Fannie Mae. (2022, February 2). Lender Letter (LL-2021-03) [Press release].

2 Cox, J. (2022, January 28). GDP grew at a 6.9% pace to close out 2021, stronger than expected despite omicron spread. CNBC. Retrieved February 3, 2022, from

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