Thank you for you service and for submitting your question to FREEandCLEAR. My first reaction is that you should fire your bank and work with another lender but that may not be the right approach to achieve your goal of buying the home. Your circumstances did not change from when you applied for your mortgage until when the underwriter declined your loan application, you just received poor guidance from your lender.
First off, the VA applies strict guidelines that require two years of employment history for self-employed applicants. A loan officer with any experience processing VA loans should have known this requirement.
Most conventional mortgage programs also require the same two year job history for self-employed applicants, as evidenced by the borrower's tax returns, to qualify for a mortgage. Some lenders provide portfolio loans, when they keep your mortgage on their books, which enables them to potentially apply a more flexible borrower employment history requirement but this is relatively uncommon.
The self-employed employment history requirement for FHA mortgages is more flexible than for VA, USDA and conventional mortgages. FHA mortgage guidelines permit a self-employment history of between one and two years "if the borrower was previously employed in the same line of work in which the borrower is self-employed or in a related occupation for at least two years." So in short, if your current job as an independent contractor is in the same field in which you worked as a W-2 employee, then you may be able to qualify for the FHA Mortgage Program. Other factors such as the stability of your income also determine your eligibility. An FHA mortgage enables you to buy a home with a low down payment and low mortgage rate. We provide a thorough overview of the FHA Mortgage Program on FREEandCLEAR for you to review.
In light of the information above and your tight time frame for closing your mortgage, I recommend the following:
1) Maintain your existing relationship with your current bank. Although your bank has done a poor job up to this point it may be the only lender in a position to close your mortgage by your closing deadline so you need to maintain this option.
2) Contact other banks immediately. You should contact other lenders as soon as possible and explain your situation including the closing date to buy your home -- communicating your timeline is crucial. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as as qualification guidelines vary.
When you speak with lenders provide your employment history, credit score and summary financial information and ask them about VA, conventional (portfolio) and FHA mortgage options. I think a VA loan is a long shot at this point but it does not hurt to ask. Also, explain to the lender that the appraisal report is already completed because you may be able to transfer the appraisal to your new lender.
By contacting other lenders you may find a mortgage proposal that is more attractive. For example, a lender may offer a more competitive mortgage rate or require a smaller down payment that enables you to keep more of your money in savings, especially if you are eligible for an FHA mortgage.
The key will be how quickly the new lender can process and close your mortgage. If you find a new lender you want to work with who cannot quite meet your closing date but comes close, you may be able to extend your escrow to accommodate the lender. You can work with your real estate agent and the property seller to understand if it is possible to extend your escrow and push back your closing date.
If you do not find a new lender or cannot move your closing date then you can fall back on your existing bank. Even though the loan terms they are offering are not very attractive -- requiring a 50% down payment is very high -- you can close the loan, buy your home and then refinance into a new VA or conventional loan in a year. Most lenders require borrowers to wait a year after they get a mortgage before they can refinance plus waiting a year should give you two years of self-employment history. The VA home loan program permits cash-out refinances so you can take money out of your home to replenish your saving when you refinance.
Even though I do not like recommending doing business with a bank that provides poor customer service, this may be the best option to achieve your goals.