By Jeff Lazerson | jlazerson@mortgagegrader.com | MortgageGrader.com | July 28, 2025

Article originally posted in Orange County Register on July 24, 2025

Time and again, potential homeowners tell me, “I can’t qualify for a mortgage.”

Let us not confuse “qualifying” with affordability in high priced Southern California. Some folks can qualify for a shoe box but not a home or condo. For those buyers, I recommend either finding co-borrowers (so you can qualify for more) or looking out of state, where homes can be much more affordable.

There is a plethora of mortgage solutions from Fannie Mae available now with some planning, preparation and foresight. Let us count the ways.

Let’s start with gig workers.

Gig workers go beyond today’s Uber drivers. Just think about all the people who work in Hollywood’s entertainment industry. They receive W2s and 1099s from multiple sources.

The trick for them is to add up all the income — going as lightly as possible when it comes to deducting business expenses — on tax returns to arrive at net income. (My personal record is 48 W2s and 1099s from one actor in a single year.)

Remember, the more write-offs you claim, the less qualifying income you have.

So, how many years of income history are you required to show in order to qualify?

It depends.

Let’s say you are a computer technician who worked for a company for at least a year before shifting to gig work. Under Fannie Mae rules, you can show just one year of self-employment income (1099), including any W2s you might have received, and you may be approved.

If you have not worked in the industry for at least one year prior to going into gig work, then you’ll need a two-year history of self-employment income.

Of course, you can also add your spouse’s income, co-borrowers’ income or co-signers’ income. (To be clear: A co-signer is a co-owner whereas a co-borrower is not on the title but is still liable for the mortgage.)

How about low FICO credit scores?

Let’s say your middle FICO is 610. Fannie Mae requires a 620 for loan approval. You can take the average of the three FICO credit scores (Transunion, Equifax and Experian). If the average score is 620 or more, you qualify. For example, if your scores are 665, 610 and 600. The average score is 625. So, that’s in the approve range.

Here’s another Fannie Mae favorite of mine. Say you have a bleeding corporation or LLC (showing huge annual losses on tax returns). But you also have other income, perhaps from a spouse or retirement income. So long as you do not provide your company tax returns (and you don’t use company funds for the purchase), the lender doesn’t have to count the huge business losses against you.

Here’s another one: If you have a large amount of liquid assets, Fannie Mae will allow you to count the assets as income.

For example, let’s say you have $300,000 in your bank. We would divide that amount by 360 months (assuming a 30-year mortgage), which comes out to another $833.33 of monthly income.

If your assets are retirement funds or stock accounts, for example, you first must take a 30% haircut. So, using the same example as above, a 30% haircut on $300,000 brings the asset depletion down to $210,000. If you take $210,000 divided by 360 months, you land at another $583.33 of monthly income. It’s still helpful, but not the full bang.

If the loan term is 15 years, then you’d replace the 360 months with 180 months.

Fannie Mae allows you to “pull” retirement funds as monthly income, so long as you have enough funds in the account.

Let’s say you need another $5,000 per month to qualify, and you are at retirement age. (Retirement age is generally considered 59 ½ years old with most retirement plans. If your plan allows you to pull out funds earlier, say at 55 years old, then you can use those funds.)

Assume you have $1 million in your retirement account. You must have at least three years of monthly “pulls” going forward in this case $180,000 ($5,000 x 36). In this example you’d have plenty of money left.

Fannie Mae and Freddie Mac mortgages offer the best pricing (rates, points and fees). That’s why you should always try a Fan or Fred loan first. If you can’t get qualified, there are plenty of exotic mortgages that may get you qualified but at higher rates, points and fees.

If you’re a first-time buyer and you don’t have the down payment funds, there is a zero-down program through CalHFA tied to a Fannie Mae mortgage. The rate on this program is certainly higher than a Fannie Mae mortgage that comes without down payment assistance.

The best thing you can do for yourself is first contact an experienced mortgage loan originator. The MLO will tell you if you are good to go or give you homework to move a loan denial to a loan approval. That originator also can get you from a more expensive loan approval to a cheaper loan approval.

For example, maybe you need to raise your FICO credit scores. MLOs have access to credit simulators showing what needs to be done to boost a score, such as paying certain debts down.

Or maybe you don’t have enough of a job history as a commission-based salesperson. The MLO will explain how long you need to be there and how Fannie Mae averages your income.

Freddie Mac rate news: The 30-year fixed rate averaged 6.74%, 1 basis point lower than last week. The 15-year fixed rate averaged 5.87%, 5 basis points lower than last week.

The Mortgage Bankers Association reported a 0.08% mortgage application increase compared with one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $806,500 loan, last year’s payment was $21 more than this week’s payment of $5,226.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.75%, a 15-year conventional at 5.5%, a 30-year conventional at 6.375%, a 15-year high-balance conventional at 5.75% ($806,501 to $1,209,750 in LA and OC and $806,501 to $1,077,550 in San Diego), a 30-year high-balance conventional at 6.625% and a jumbo 30-year fixed at 6.375%.

Eye-catcher loan program of the week: A 40-year fixed-rate mortgage, interest only for the first 10 years, at 6.625% with 1 point cost.

Jeff Lazerson, president of Mortgage Grader, can be reached at 949-322-8640 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com.

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