Homeowners can permanently cut one of their biggest monthly expenses by refinancing at today’s historically low rates. But there’s a new refinancing challenge for freelancers. You’ve got to prove that your income hasn’t been savaged by the pandemic.

Lenders are turning away freelancers and small business owners who have lost clients or projects during the past four economically-challenging months, mortgage experts say. The new rules haven’t made refinancing impossible for freelancers, but it has become dramatically more difficult.

“Lenders used to simply require a current-year tax return to verify self-employment income,” said Steven Foster, owner of a Pasadena, Calif.-based mortgage brokerage called Vista Financial Advisors. “Now you need to show bank statements for the past two months to prove that your income hasn’t been hurt.”

If it has, you may need to jump through hoops to get qualified based on assets or a low debt-to-income ratio.

Is it worth it?

Refinancing can be a hassle under the best of circumstances. Knowing that it might be tougher now could cause you to wonder whether it’s worth it. The answer will hinge on your current interest rate and the size of your loan.

If you currently have a 30-year, fixed-rate loan at 4%, for instance, your monthly payment would work out to $477.42 for each $100,000 that you originally borrowed. In other words, if your loan was for $500,000, your monthly payment would be $2,387.08 (5 times $477.42).

Borrowers with good credit can now get a 30-year, fixed-rate loan at 2.75%. That would cut the monthly payment to $408.24 per $100,000 balance or $2,041.21 on a $500,000 loan. That’s a $346 monthly savings. Over the course of a 30-year loan, the interest rate savings works out to a whopping $124,560 — well worth a little inconvenience.

Practical refinance math

Of course, the previous example holds balances and repayment terms constant to provide an apples-to-apples comparison.

In reality, if you have a 4% loan, you’ve probably been paying on your mortgage for a decade. Your balance might have fallen to, say, $400,000. And you may not want to add years onto your repayment schedule by refinancing.

Is a refinance still beneficial? Assuming you refinance your current balance into a 20-year loan at 2.75%, your monthly payments work out to $542.17 per $100,000 borrowed. That’s $2,168.67 — a $218.41 monthly savings over the existing 4% loan. That saves $52,418 in interest expenses over the 20-year life of the agreement.

Play with your numbers

Want to see how this works with your loan? You can play with your own numbers by using the multipliers in the chart below. To estimate a monthly payment at any given interest rate, round your loan amount to the nearest thousand. In other words, if you owe $175,250, multiply $175 by the multiplier that most closely corresponds with your interest rate.

For example, if you qualify for a 5%, 30-year loan, you’d multiply $175 by 5.37 to get an estimated monthly payment of $939.75. You’d use the 7.91 multiplier if you preferred a 15-year loan at 5%. (Because we’re rounding, your real numbers will be close but not precise. In this case, the actual monthly payment for a 30-year loan would work out to $940.78, for instance)

Interest rate…..30-year……15-year

5.00% ………………..5.37…………7.91

Refinancing challenge for freelancers

If playing with the math convinced you that you should refinance, here’s the refinancing challenge for freelancers. The Federal National Mortgage Association, better known as Fannie Mae, has new rules that dictate how lenders must assess a self-employed borrower’s ability to repay. (Fannie Mae buys loans from lenders, so most lenders follow its rules.)

Where the pre-Covid rule book allowed banks to simply look at the borrower’s most recent tax return to verify income, Fannie Mae now requires that lenders also look at the borrower’s cash flow since the beginning of the year. Lenders must take particular note of business income during the past 60 days.

If that income is less than the income reflected on the borrower’s tax return for the same year-ago period, the lender needs to go through a number of other checks to determine whether the borrower can still qualify for a loan. 

Unemployment benefits are not counted as income, except for seasonal workers.


If your income has declined, there are still two ways that you may be able to qualify for a new mortgage, says Foster. One 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 the payments up and then compare the total to your gross income. If you have a $1,000 mortgage; a $250 car loan, a $100 student loan payment and $150 in minimum monthly payments on credit cards, for example, your total debt payments amount to $1,500. As long as your monthly income exceeds $3,000, you have a debt-to-income ratio below the required 50%.

That said, you may still have to explain your business plan to assure the lender that the $3,000 in monthly income you’re receiving now is solid. But, at least your loan application won’t be rejected out of hand.

Asset depletion loans

For those with plenty of savings, there’s another option that factors in “asset depletion,” says Foster. This loan underwriting process looks at the other assets that the borrower has available to them 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.

Moreover, unless your assets are in cash — bank accounts and money-market funds — the lender will impose a 30% “discount” against your assets before determining what you can afford. So, if you had $500,000 in savings, the lender would assume that you had only $350,000 to pay off the loan. That’s to protect from market swings, Foster says.

“In other words, if you don’t really need a loan, you can get a loan,” he says.

No HARP program

It’s worth noting that following the 2009 recession, mortgage rules were altered by the “Home Affordable Refinance Program,” better known as HARP. This essentially allowed economically troubled homeowners to refinance their existing loan balances to reduce their rates, but did not allow them to add debt.

“All you were doing is helping borrowers improve their position by reducing the interest rate and required payment on the loan,” said David Battany, executive vice president of capital markets with Guild Mortgage in San Diego.

The HARP program expired and no similar program has been initiated to cope with the Covid-recession. Now, even when borrowers have a long track record of making higher mortgage payments, they may not be able to qualify for a new reduced-rate mortgage, experts say.

“It just doesn’t make sense,” Battany complains. “Whatever hole a person is in because of Covid, why wouldn’t you let them improve their position by saving money on their mortgage payments?”

Time is on your side

While those challenges may appear daunting, there’s no reason to believe that interest rates are going to climb in the next few months. With the economy reeling from the prolonged Covid shut-downs, interest rates are likely to stay low for at least the foreseeable future.

That gives you some time to ramp up your efforts to possibly bring in enough additional income to meet today’s exacting business income requirements.

What if your industry is still languishing? Consider a side hustle in some of the industries that continue to thrive.

Those who can teach or tutor, for instance, can find well-paid jobs with dozens of online tutoring platforms. Realize, too, that tutoring isn’t limited to academic subjects.

Some sites that enlist freelancers as tutors, such as LessonFace, specialize in art, music and language. Others focus on technology and coding.  There is also strong demand for babysitters, writers, consultants and virtual assistants.

And, if you’re not afraid to work out in public, delivery services such as DoorDash and GrubHub, are slammed with work. Even Uber and Lyft drivers report that they’re earning more today, largely because fewer people are willing to drive.

If you’re not certain what you can do, take the SideHusl Quiz, which attempts to match people with side hustles that suit their unique combination of skills, interests and resources.