June 14, 2012
When to Indicate Self-Employed and Prior Bankruptcies for Borrowers
Loans involving qualifying income from self-employment or borrowers with a previous bankruptcy present a higher risk of default. When requesting a United Guaranty rate quote or submitting for mortgage insurance, borrowers should be indicated as self-employed or having a prior bankruptcy when the following apply.
A borrower must be indicated as "self-employed" when both of the following apply:
- The borrower has 25% or greater ownership interest in a business, AND
- The positive income from the self-employment is being used for qualification (regardless of the percentage it represents of the total qualifying income or if it is needed to qualify).
The borrower does not need to be indicated as "self-employed" when any one of the following applies:
- The borrower has less than 25% ownership interest in a business; OR
- The positive income from the self-employment is not being used for qualification; OR
- The borrower has negative income from the self-employment.
Borrowers with Prior Bankruptcies
United Guaranty uses the industry standard seven-year time frame as the determinate for indicating when a borrower has had a prior bankruptcy. Therefore, the borrower only needs to be indicated as having a prior bankruptcy for rate quote requests and mortgage insurance submissions when the bankruptcy has been discharged or dismissed within the past seven years (even when the bankruptcy appears on the borrower’s credit report).