Secondary Business Loss

“I don’t think I’m going to waste my time applying for a new mortgage!  Last time I was denied because I claimed a loss on my side business. I still own my business and really don’t make much money from it… I just enjoy doing it and filed a loss last year. The best thing for me to do is to wait for the next tax year…?”

Well great news!  This isn’t true any longer for conventional financing.  In the scenario above, the restriction to include business loss from a secondary source of self-employment has been lifted.  When lending had contracted in the past and many borrowers faced having to rely on a secondary income, the risk of default was higher.

When stabilization set in, along with multiple years of risk analysis, it substantiated the recommendation to remove this restriction.  It was determined that borrowers with a primary source of non-self-employed income are at very low risk of default when they have secondary income loss.  It stands to reason that borrowers with a wage earning job or fixed income wouldn’t continue maintaining a “side business” that losses money.

Mortgage lending is ever changing.  It becomes, more or less, restrictive based upon several factors like market need, economy and risk analysis that rate the success and/or failure of products. In the current lending environment, lending parameters and restrictions change from time to time.  It always pays to ask questions about your scenario.

Written by:  Brant Smith, Director of Underwriting at Royal United Mortgage LLC
Published:  08/09/2016