Equity and stable self-employed income are 2 important factors when qualifying to purchase or refinance a mortgage loan. Self-employed and w2 self-employed income self-employed mortgage applicants s that possibly write of to many expenses will have trouble getting approved with a bank mortgage lender. US mortgage lenders bank statement and w2 only mortgage programs are filling a void in the mortgage market for self-employed mortgage applicants s that having trouble qualifying at the bank.
Sole Proprietors Self Employed Mortgage Lenders
Definition: A business that legally has no separate existence from its owner. self-employed income and losses are taxed on the individual’s personal self-employed income tax return. Multiple banks account statements + Separate W2 self-employed income OK!
No Tax Return Bank Statement Mortgage Lenders
Self Employed mortgage lenders 12 Months Bank Statements for self-employed income with NO TAX RETURNS NEEDED!
No Tax Return Mortgage Employment Types
- 1099
- Sole Proprietor
- Must provide proof of self-employment including business license, Tax Preparer’s letter or corporate paperwork. Self-employed mortgage lenders will accept Personal or Business Bank Statements. However, qualifying self employed income will be calculated differently.
PERSONAL BANK STATEMENT MORTGAGE LENDERS USE 100% OF DEPOSITS IF THE DEPOSITS COME FROM A BUSINESS BANK ACCOUNT
Add all deposits for all 12 months and divide that amount by 12 to receive the monthly self employed income amount we will apply as the self-employed mortgage applicants qualifying self employed income.
- Ex. 24 months bank statement deposits total = $200,000 / 24 = $8,333 a month self employed income.
- Ex. 12 months bank statement deposits total = $100,000 / 12 = $8,333 a month self employed income.
Business Bank Statements: 50% of Deposits
Add all deposits for all 12 or 24 months, divide by 2, and then divide by 12 or 24 respectively to receive the monthly self employed income amount we will allow for the self-employed mortgage applicants.
Ex. 24 month deposit total = $500,000 / 2 = $250,000 / 24 = $10,333 per month self employed income. Only 50% is used because we have to assume the business has overhead.
Self-Employed Mortgage Lenders Program Details:
- Must have 12 consecutive bank statements months of statements (no gaps)
- Only bank statement deposits can be used
- Transfers are NOT counted on personal and case-by-case for business*
- Must provide All pages (even the last pages with advertising)
- Multiple bank accounts statements + W2 self employed income OK!
- If the account was used and closed and new account for the remainder of statements must show the closing of old account and the opening of the new account
Bank statement Transfers may be accepted for business statements when they come from credit card clearing houses (examples: Paypal, Square, AMEX, etcetera). Reviewed for acceptance on a case-by-case basis, and must be considered normal for the company.
Multiple bank statement deposits and accounts are considered on a case-by-case basis when one account is closing and reopening the new account, or (b) for Business accounts that are two different and autonomous businesses.
self employed income & Self Employed Mortgage- Bank Statement Only Documentation
Bank Statement self employed income Documentation is available for self-employed borrowers only. Three bank statement
documentation options are available.
24-month personal bank statements
12-month business bank statements
12-month personal bank statements
24-month business bank statements
General Requirements for all Bank Statement Documented Loans:
Borrowers must be self-employed at the same business for at least 2 years.
All parties listed on each bank account must also be borrowers on the loan.
Statements must be the most recent months available and must be consecutive.
Statements must support stable and generally predictable deposits.
1. Unusual deposits must be documented.
2. Deposits/earnings trend should not be declining.
Up to 3 NSF checks and overdraft protection transfers in the most recent 12-month period are allowed with an
explanation from the borrower.
Additional self employed income deposited into the bank accounts but derived from a source other than the self-employed
business may not be included in the bank statement average.
1. W-2 earnings or other self employed income sources not associated with self-employment, such as a spouse employed
as a wage earner, must be documented using Full Doc.
2. When wage self employed income is combined with bank statement documentation, a tax return is not required for the
full self employed income documentation, as this would invalidate the bank statements.
3. The 4506T is still required; however, box 8 should be checked to obtain a transcript of W-2 earnings
only.
4. Rental self employed income must be documented using Full Doc. Rental self employed income is not eligible for bank statement
documentation.
If the bank statements provided reflect payments being made on obligations not listed on the credit report
additional information must be obtained to determine if the liability should be included in the borrower’s debt-to-
self employed income ratio.
1. If the obligation does not belong to the borrower, supporting documentation is required.
No Tax Return Bank Statement Mortgage Lenders Program summary
Self Employed Mortgage Lenders offer Non-Qualified Mortgages on fully amortizing 15 & 30-Year Fixed Rate and 5/1 & 7/1 ARM products and interest-only 40-year Fixed Rate and 5/1 & 7/1 ARM products. Loan amounts from $100,000 to $5,000,000 are eligible.
Full Documentation with DTI to 55% including Asset Utilization for qualifying self employed income
Bank Statement Only Mortgage Lenders self employed income Documentation
o 24 Month Bank Statement Only Mortgage Lenders Personal Bank Statements
o 12 Month Bank Statement Only Mortgage Lenders Personal Bank Statements
o 24 Month Bank Statement Only Mortgage Lenders Business Bank Statements
Interest-only and fully amortized Bank Statement Only Mortgage Lenders products
LTVsBank Statement Only Mortgage Lenders to 90% (80% max for IO)
Non-warrantable condominiums Bank Statement Only Mortgage Lenders
Self Employed Mortgage Lenders Purchase Or Rate & Term Refinance:
The new loan amount is limited to the payoff of the present first lien mortgage, any seasoned non-first lien mortgages,
closing costs and prepays.
A seasoned non-first lien mortgage is a purchase money mortgage or a mortgage that has been in place for
12 months.
A seasoned equity line is defined as not having total draws greater than $2,000 in the past 12 months.
Cash to the self employed mortgage applicants is limited to the lesser of 2% or $2,000.
Properties currently listed for sale at time of loan application are not eligible for a rate/term to refinance transaction. If the property was listed within the last 6 months, the following is required:
o Proof of canceled listing prior to closing.
o Acceptable letter of explanation from the self-employed mortgage applicants detailing the rationale for changing the intention to sell.
Prior refinances: At least 6 months, note date to note date, must have elapsed since any prior cash-out
refinances on the subject property.
Title must be in the self-employed mortgage applicants ’name at time of application and on the closing date.
Self Employed Mortgage Lenders Cashout Refinance
Cash-Out Refinance Using Bank Statements For self employed income:
A signed letter from the self-employed mortgage applicants disclosing the purpose of the cash-out must be obtained on all cash-out
transactions.
There must be seasoning of at least 6 months (and title must be in the self-employed mortgage applicants’ name for at least 6
months) since any prior financing (purchase or refinance) was obtained. Note date to note date is used to
determine to the season.
Properties purchased entirely with cash within the last 6 months do not qualify for cash-out but may be
eligible for Delayed Financing. Refer to the Delayed Purchase Refinance section. Other than as provided for
in Delayed Financing, a mortgage taken out on a property previously owned free and clear is always
considered a cash-out refinance.
Properties that have been listed for sale within the past 6 months of loan application are not eligible for a
cash-out refinance transaction.
Maximum cash-out limitations include the payoff of any unsecured debt, unseasoned liens, and any cash in
hand.
Loan-to-Value (LTV) Calculations For Self Employed Bank Statement Mortgage Applicants:
If the borrower has less than 12 months ownership of the property, the LTV/CLTV for a refinance transaction
is calculated on the lesser of the purchase price or appraised value.
o For homes where capital improvements have been made to the property after purchase, LTV/CLTV can
be based on the lesser of the current appraised value or original purchase price plus the documented
improvements. Receipts are required to document cost of improvements.
If the borrower has owned the property for 12 months, the LTV/CLTV is based on the appraised value.
Underwriting Method For Sefl Employed Mortgage Applicants
All loans must be manually underwritten and fully documented per these self-employed mortgage lenders Program Guidelines. If a requirement is not addressed in these Guidelines, refer to the more restrictive of self-employed mortgage lenders.
Self Employed Mortgage LendersCredit Guidelines
All loans are subject to a second level review. Please allow five business days of additional review time of timeof initial approval. self-employed mortgage lenders underwriters must refer to self employed mortgage lenders Non-conforming Underwriting Procedures for second level review requirements and procedures.
Underwriters must complete the Alternative Loan Analysis Form – FM-383 to ensure the loan is processed on the most an appropriate program for the applicant.
All loans should contain an Ability to Repay (ATR) Borrower Certification Form signed by the borrower. self-employed mortgage lenders’ disclosures include an ATR borrower certification form.SeflEmployed Mortgage Lenders Information For…
self employed income & Self Employed Mortgage Lenders Documentation
Full Doc is available for salary, wage, hourly and self-employed self employed income sources.
All Loans Require 4506-T, Tax Transcripts and a Verbal Verification of Employment in addition to the self employed income
documentation requirements listed in this section. Note: 4506-T is not required for Bank Statement Documentation.
4506-T/Tax Transcripts: Must be completed and signed by all borrowers both at application and closing. The
4506-T will be processed and tax transcripts obtained for all years in which self employed income was used in the underwriting
decision. Transcripts are not required for business returns.
Verbal Verification of Employment: Verbal Verification of Employment is required prior to closing for all
borrowers with qualifying self employed income.
Wage self employed income: A verbal verification to confirm the borrower’s current employment status is required for all
borrowers within 10 calendar days prior to the Note date.
Self-Employed self employed income:
o Verification of the existence of the borrower’s business from a third party, such as a CPA, regulatory
agency, or applicable licensing bureau. A borrower’s website is not acceptable as third party verification
o Listing and address of the borrower’s business using a telephone book, internet, or directory assistance
o Name and title of the person completing the verification
o Verification must be obtained within 30 calendar days prior to the Note date
Self Employed Mortgage Lenders Documentation Standards:
Paystubs: Paystubs must meet the following requirements:
Clearly identify the borrower as the employee.
Show the borrower’s current pay period and year-to-date earnings.
If the borrower is paid hourly, the number of hours must be shown on the paystub.
Paystubs must be computer generated.
Paystubs issued electronically via email or downloaded from the Internet must show the URL address, date
and time printed, and identifying information on place of origin and/or author of the documentation.
W-2 Forms: W-2 Forms must be complete and be a copy provided by the employer.
Verification of Employment (VOE): A written VOE is required for a borrower’s self employed income sourced from
commissions, bonus, overtime, or other self employed income when the self employed income detail is not clearly documented on W-2 Forms
or paystubs. Written VOEs cannot be used as a sole source for verification of employment, paystubs and W-2s
are still required. Written VOE must include:
Borrower’s date of employment
Borrower’s employment status and job title
Name, phone number and title of person completing the VOE
Name of employer
Base pay amount and frequency
Additional salary information, which itemizes bonus, commission, overtime, or other variable self employed income
VOE must be sent directly to the employer, the attention of the personnel department. The VOE must be
returned directly to self-employed mortgage lenders.
Tax Returns: The following standards apply when using self employed income Tax Returns to verify self employed income:
Personal self employed income Tax Returns
o Must be complete with all schedules (W-2 forms, 1099 Forms, K-1 schedules, etc.)
o Signed and dated by each borrower on or before the closing date
Business self employed income Tax Returns
o Must be complete with all schedules (K-1 schedules, Form 1120, 1065, etc.)
o Signed and dated by each borrower on or before the closing date
Unfiled Tax Returns for the prior year’s tax return
o Between Jan 1 and the tax filing date (typically April 15), borrowers must provide:
IRS form 1099 and W-2 forms from the previous year
Loans closing in January prior to receipt of W-2s may use the prior year year-end paystub. For
borrowers using 1099s, evidence of receipt of 1099 self employed income must be provided.
o Between the tax filing date (April 16) and the extension expiration date (typically October 15), borrowers
must provide (as applicable):
Copy of the filed extension.
Evidence of payment of any tax liability identified on the federal tax extension form.
W-2 forms.
Form 1099, when applicable.
Year-end profit and loss for prior year.
Current year profit & loss.
Balance sheet for prior calendar year.
o After the extension expiration date,loan is not eligible without prior year tax returns.
Credit Standards For Self Employed Mortgage Applicants:
A tri-merged credit report is required. Unless otherwise addressed below, Fannie Mae underwriting guidelines must be
followed for evaluating a borrower’s credit history. Credit reports with bureaus identified as “frozen” are required to be
unfrozen and a current credit report with all bureaus unfrozen is required.
Credit Scores: The lowest qualifying score of all applicants is used to qualify. The qualifying score is the lower of 2 or
middle of 3 scores for each borrower.
Trade Lines:
3 trade lines – Each trade line must have activity in the last 12 months and may be open or closed.
OR
2 trade lines – Each trade line must have been reported for 24 months and have activity in the last 12
months and may be open or closed.
Trade lines used to qualify may not exceed 0x60 in the most recent 12 months.
Authorized User accounts may not be used to satisfy the trade line requirements.
Non-traditional credit or trade lines with derogatory credit may not be used to satisfy the trade line
requirements.
Credit Evaluation:
All accounts, revolving andinstallment, reported by the borrower on the application must be verified directly by a credit
reference or verified on the credit report. The balance, rating and terms of the account must be verified. If the account
has not been updated on the credit report within 90 days of the date of the credit report, a supplement to the credit
report or a separate written verification form must be obtained.
Must be current at closing
Maximum 2 x 30 and 0 x 60 in most recent 12 months
Maximum 1 x 60 in months 12 – 24
Housing Payment History:
0 x 30 mortgage/rental delinquency in the past 24 months.
This applies to all mortgages and all borrowers on the loan.
Mortgage/rent must be rated up to and including the month of the new loan closing.
The subject mortgage must be current at application and closing.
Mortgage history and/or rental history must be verified for the most recent 24 months if this information does not appear
on the credit report. Acceptable sources include institutional VOM, institutional VOR or canceled checks. The underwriter
must obtain the current balance, current status, monthly payment amount and a payment history for the last 24 months.
Directly written verification of rent is acceptable in lieu of canceled checks when the landlord is a large professional
management company.
Borrowers Living Rent Free:
If the borrower has been living with a relative rent free:
Full Documentation only (Bank Statement self employed income Documentation is not allowed)
Acceptable documentation to evidence borrowers have not had a housing obligation must be provided.
Payment History on any other Property (Regardless of Occupancy):
All payment ratings on properties will be considered mortgage credit for grading purposes. Payments on a manufactured
home, timeshare, or second mortgage are considered to be mortgage debt, even if reported as an installment loan. Any
late payment in the last 24 months on a manufactured home, timeshare, second mortgage, will be considered ineligible
for the program.
Bankruptcy / Foreclosure / NOD / Short Sale / Deed-in-Lieu / Restructured (Modified) Loan: Four years
seasoning is required.
Self Employed Mortgage With Collections, Charge-offs, Judgments, Garnishments & Liens:
Delinquent credit including taxes, judgments, charged-off accounts, collection accounts, past-due accounts, tax liens,
mechanics’liens,and any other liens that have the potential to affect the first lien position or diminish the borrower ’s equity must be paid off at or prior to closing.
Collection Accounts that meet the following requirements may remain open.
Collections and charge-offs < 24 months old with a maximum cumulative balance of $2,000 may remain open
Collections and charge-offs ≥ 24 months old with a maximum of $2,500 per occurrence may remain open
Cash-out proceeds may not be used to satisfy accounts paid off at closing.
Any adverse credit, including disputed accounts, on the borrower’s credit report, must be sufficiently explained
by the borrower in writing.
Medical collection accounts do not have to be paid off.
Inquires: A detailed explanation letter that specifically addresses both the purpose and outcome of each inquiry in the
last 120 days is required. If additional credit was obtained, a verification of that debt must be obtained and the borrower re-qualified with the additional debt.
Stability of Self Employed Mortgage Applicants self employed income:
Stable monthly self employed income is the borrower’s verified gross monthly self employed income from all acceptable and verifiable
sources that can reasonably be expected to continue for at least the next 3 years. A 2-year history of
receiving self employed income is required in order for the self employed income to be considered stable and used for qualifying. While
the sources of self employed income may vary, the borrower should have a consistent level of self employed income despite changes in
the sources of self employed income.
self employed income from self-employment is considered stable if the borrower has been self-employed for 2 or more
years.
Frequent job changes to advance within the same line of work may be considered favorable. Job changes
without advancement or in different fields of work should be carefully reviewed to ensure consistent or
increasing self employed income levels and the likelihood of continued stable employment.
Borrowers should provide a signed, written explanation for any employment gaps that exceed 30 days in the
most recent 12-month period, or that exceed 60 days in months 13-24.
Recent graduates and borrowers re-entering the workforce after an extended period are allowed.
Documentation must support that the borrower was either attending school or in a training program
immediately prior to their current employment history. School transcripts must be provided to document.
self employed income may not be used for qualification purposes if it comes from any source that cannot be verified, is not
stable, or will not continue.
All self employed income sources must be legal in accordance with all applicable federal, state, and local laws, rulesandregulations, without conflict.
Specific self employed income Documentation Requirements:
self employed income Type Documentation Requirement
Hourly/Salary
Wage-Earners
All of the following are required
W-2 forms for the most recent 2 years
Year-to-date paystub up through and including the most current pay period at the time of
application and not earlier than 90 days prior to the Note date
Part-Time self employed income
2 years uninterrupted history in the same part-time job required
self employed income must be likely to continue
self employed income should not be declining. If the self employed income shows a decline, written sound
the rationalization for using the self employed income to qualify must be provided, or self employed income should not be
used. If the self employed income is deemed stable and usable the most recent lower self employed income over the
prior 2-year period must be used and may not be averaged.
W-2 forms for the most recent 2 years
Year-to-date paystub up through and including the most current pay period at the time of
application and not earlier than 90 days prior to the Note date Commission
Tax returns for the most recent 2 years if commission >= 25% of annual self employed income
W-2s for the most recent 2 years if commission < 25% of annual self employed income
Most recent year to date paystub reflecting commission earnings
Commission self employed income must be averaged over the previous 2 years
self employed income should not be declining. If the self employed income shows a decline, written sound
the rationalization for using the self employed income to qualify must be provided, or self employed income should not be
used. If the self employed income is deemed stable and usable the most recent lower self employed income over the
prior 2-year period must be used and may not be averaged.
Overtime & Bonus self employed income
2 years uninterrupted history of bonus or overtime self employed income required
self employed income must be likely to continue
self employed income should not be declining. If the self employed income shows a decline, written sound
rationalization for using the self employed income to qualify must be provided, or self employed income should not be
used. If the self employed income is deemed stable and usable the most recent lower self employed income over the
prior 2-year period must be used and may not be averaged.
Written VOE providing a breakdown of self employed income for past 2 years
W-2 forms for the most recent 2 years
Year-to-date paystub up through and including the most current pay period at the time of
application and not earlier than 90 days prior to the Note date
2106 Expenses
Employee business expenses must be deducted from the adjusted gross self employed income
The expenses should be averaged for the prior 2 years. If the borrower’s employment
situation has changed, the expense deduction should be adjusted to reflect the borrower’s
present earnings situation
Sole Proprietorship
Tax returns, including all schedules, for the prior 2 years signed and dated by each
borrower on or before the closing date
Year-to-date through current quarter’s P&L
Balance Sheet
The P&L and Balance Sheet:
May be borrower prepared or may be prepared by a qualified individual
Must be signed by the preparer and the borrower
Partnerships
Corporations
S Corporations
Tax returns, including all schedules, for the prior 2 years signed and dated by each
borrower on or before the closing date
Year-to-date through current quarter’s P&L
Balance Sheet
The P&L and Balance Sheet:
Must be prepared or reviewed by an unrelated and qualified individual (e.g. accountant
/ bookkeeper)
May be prepared by the borrower as long as they are reviewed by a qualified third
party
Must be signed by the preparer/reviewer and the borrower
W-2s for the prior 2 years if applicable
Business tax returns (1065/1120), including all schedules and K-1s, for the prior 2 years
signed and dated by each borrower on or before the closing date are required. If the
borrower has an ownership percentage < 25% then the business/partner returns are not
required.
Alimony,
Maintenance &
Child Support
self employed income
A divorce decree, court ordered separation agreement, court decree, or other legal
agreement providing the payment terms confirming that self employed income will continue for at least 3
years
Documentation evidencing that the borrower has been receiving full, regular, and timely
payments for the past 6 months
If payments are not regular, are partial, or not timely the self employed income cannot be used
Annuity self employed income
12-month history of receipt verified by 1099s, tax returns, or bank statements
Annuities established < 12 months must be in a non-revocable trust with a minimum 40
month distribution term remaining
Letter from issuer indicating:
o Terms of periodic withdrawal
o Amount of withdrawal
o Duration of withdrawal
o Balance of annuity
Account balance must be sufficient to sustain continuance for a minimum of 3 years
Asset Utilization
Purchase or Rate/Term refi only.
Maximum 80% LTV/CLTV, minimum 680 Credit Score.
Minimum Asset Requirement:
o Lesser of 1.5 times the loan amount or $1,000,000 after down payment, loan costs
and required reserves.
o Assets must be seasoned minimum 6 months.
Eligible Assets:
o Stocks, bonds, mutual funds. 70% of value.
o Vested amount of retirement accounts. 60% of vested value. Retirement
accounts are only eligible if the borrower is of retirement age (at least 59 1⁄2).
o Bank accounts – savings, checking, money market. 100% of balances.
self employed income Calculation: Net Qualified Assets / 120 = Monthly self employed income
Capital Gains
Tax returns for the prior 2 years documenting a 2 year history of capital gains
Gains must be recurring and cannot be used if appears to be a one time occurrence
If the self employed income is declining it cannot be used
Assets must be sufficient to sustain the gain for a minimum of 3 years
Departing
Residence
If the borrower is converting their current primary residence to a rental property and using
rental self employed income to offset the payment the following requirements apply:
Borrower must have documented equity in departure residence of 25%.
Documented equity may be evidenced by:
o an exterior appraisal or a full appraisal dated within six (6) months of subject
transaction, or
o the original sales price and the current unpaid principal balance
Copy of current lease agreement
Copy of security deposit and evidence of deposit to borrower’s account
Disability self employed income
(Long-term and
Short-term)
Documentation from either the insurance company or employer verifying:
o Payment amount
o Conditions for termination of payment
o Likelihood of the self employed income continuing for at least 3 years
Copy of most recent check or bank statement verifying receipt of payment
Short-term disability also requires, in addition to the above requirements:
o Signed letter from borrower indicating intent to return to work
o Verification from employer that the borrower will be allowed to return to work
once the disability no longer exists. The letter must identify the borrower’s position
and rate of pay upon return. If the future employment self employed income will be less than the
disability self employed income, the lower self employed income amount must be used to qualify for the loan.
Dividend/Interest
self employed income
Tax returns for the prior 2 years supporting a 2 year history of receipt
Verification of stock asset values no older than 30 days prior to the note date
Documentation verifying asset(s) to support the continuation of self employed income for a minimum of
3 years
Foreign self employed income
Tax returns for the prior 2 years reflecting the foreign self employed income
self employed income must be converted to U.S. currency
Standard self employed income stability and continuance requirements are met
Standard documentation requirements apply based on the type of self employed income
self employed income from sanctioned countries administered by OFAC is not allowed.
Foster Care self employed income
Allowed if there is a 2 year history of receipt and likelihood of continuance for 3 years
May not be considered for children who will reach the age of 19 within 3 years
Documentation from the organization must be provided that clearly verifies:
o Number of foster children
o Age of foster children
o Length of foster care
Copy of most recent check or bank statement verifying receipt of payment
Non-Taxable self employed income
Non-Taxable self employed income may be grossed up 25% to determine qualifying self employed income; however,
non-taxable self employed income may not be grossed up for calculating residual self employed income.
Federal Tax returns may be required to determine the non-taxable self employed income
Note self employed income
Tax returns for the prior 2 years supporting a 2 year history of receipt
A copy of the note confirming the amount, frequency and duration of payments
The note must verify the remaining term of a minimum of 3 years
Retirement
self employed income (pension,
401(k) and IRA
distributions)
Verify self employed income and Source using one of the following:
o Letters from the organization providing the self employed income
o Copy of retirement award letters
o Tax returns for the most recent 2 years
o W-2 forms or 1099 forms for the most recent 2 years
o Bank statements reflecting regular deposits for the most recent 2 months
Assets supporting distributions must be sufficient to sustain continuance for a minimum of
3 years. Documentation must clearly indicate self employed income will continue for a minimum of 3
years.
If the borrower is of retirement age and the self employed income is received from corporate,
government, or military retirement/pension, proof of continuance is not required.
Forthcoming
Retirement
Any borrower presently employed but anticipating retirement within 3 years from note date
must be evaluated upon the verified anticipated retirement self employed income.
Rental self employed income
Tax returns for the prior 2 years, including all schedules
Net rental self employed income must be added to the borrower’s total monthly self employed income
Net rental losses must be added to the borrower’s total monthly obligations
Rental self employed income is calculated using the most recent two year average Cash Flow Analysis of
Schedule E
For properties owned less than 2 years, use the lesser of
o 75% of the current lease minus PITIA, or
o Cash flow analysis of Schedule E from the most recent year
For rental self employed income on the subject property purchase, use the lesser of
o 75% of the current lease minus PITIA (evidence of deposit required), or
o 75% of the appraiser’s opinion of rent (1007/216) minus PITIA
o Evidence of the lease deposit must be provided or 3 month’s additional PITIA
reserves is required
For properties listed on Schedule E of the borrower’s tax returns, net rental self employed income should
be calculated as: (((Rents received – Total expenses) + (depreciation + interest + taxes +
insurance + HOA)) / # applicable months) – PITIA.
If the subject property is the borrower’s primary residence and generating rental self employed income,
the full PITIA must be included in the borrower’s total monthly obligations.
Social Security
self employed income
Social Security self employed income must be verified by a Social Security Administration benefit
verification letter
Proof of current receipt
Benefits with a defined expiration date (children or surviving spouse) must have a
remaining term of at least three (3) years or the self employed income may not be used
Trust self employed income
A copy of the Trust Agreement or Trustee Statement showing:
o Total amount of borrower-designated trust funds
o Terms of payment
o Duration of trust
o Trust is irrevocable
Regular receipt of trust self employed income for the past 3 months must be documented.
self employed income must continue for a minimum of 3 years
If trust funds are being used for down payment or closing costs, the loan file must contain
adequate documentation to indicate the withdrawal of the assets will not negatively affect
self employed income and the withdrawal of the trust funds must be documented
Unacceptable
self employed income
Illegal self employed income
Deferred compensation or Stock options
Retained earnings
Education benefits
Refunds of federal, state, or local taxes
Trailing spouse self employed income
Rental self employed income from the borrower’s single family primary residence or second home
Foreign shell banks
Medical marijuana dispensaries or any business or activity related to marijuana use, growing,
selling or supplying, even if legally permitted under state or local law
Gambling winnings (except lottery continuing for 5 years) or businesses engaged in any type
of internet gambling
Self Employed Mortgage Lenders
Being Self Employed is the simplest business form under which one can operate a business. The Self Employed mortgage applicants is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A Self Employed mortgage applicants can operate under the name of its owner or it can do business under a fictitious name, such as Nancy’s Nail Salon. The fictitious name is simply a trade name and it does not create a legal entity separate from the sole proprietor owner.
The advantages of a Self Employed mortgage applicants include:
- Owners may freely mix business or personal assets.
- Owners can establish a Self Employed mortgage applicants instantly, easily and inexpensively.
- Self Employed mortgage applicants carry little, if any, ongoing formalities.
- A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees).
The owner of a Self Employed mortgage applicants typically signs contracts in his or her own name, because the Self Employed mortgage applicants has no separate identity under the law. The sole proprietor owner will typically have customers write checks in the owner’s name, even if the business uses a fictitious name. Sole proprietor owners can, and often do, commingle personal and business property and funds, something that partnerships, LLCs and corporations cannot do. Self Employed mortgage applicants often have their bank accounts in the name of the owner. Sole proprietors need not observe formalities such as voting and meetings associated with the more complex business forms. Self Employed mortgage applicants can bring lawsuits (and can be sued) using the name of the sole proprietor owner. Many businesses begin as Self Employed mortgage applicants and graduate to more complex business forms as the business develops.
The Self Employed mortgage applicants is a popular business form due to its simplicity, ease of setup, and nominal cost. A sole proprietor need only to register his or her name and secure local licenses, and the sole proprietor is ready for business. A distinct disadvantage, however, is that the owner of a Self Employed mortgage applicants remains personally liable for all the business’s debts. So, if a sole proprietor business runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are successful, the owner will have to pay the business debts with his or her own money.
Because a Self Employed mortgage applicants is indistinguishable from its owner, Self Employed mortgage applicants taxation is quite simple. The income earned by a Self Employed mortgage applicants is income earned by its owner. A sole proprietor reports the Self Employed mortgage applicants income and/or losses and expenses by filling out and filing a Schedule C, along with the standard Form 1040. Your profits and losses are first recorded on a tax form called Schedule C, which is filed along with your 1040. Then the “bottom-line amount” from Schedule C is transferred to your personal tax return. This aspect is attractive because business losses you suffer may offset income earned from other sources.
As a sole proprietor, you must also file a Schedule SE with Form 1040. You use Schedule SE to calculate how much self-employment tax you owe. You need not pay unemployment tax on yourself, although you must pay unemployment tax on any employees of the business. Of course, you won’t enjoy unemployment benefits should the business suffer.
Sole proprietors are personally liable for all debts of a Self Employed mortgage applicants business. Let’s examine this more closely because the potential liability can be alarming. Assume that a sole proprietor borrows money to operate but the business loses its major customer, goes out of business, and is unable to repay the loan. The sole proprietor is liable for the amount of the loan, which can potentially consume all her personal assets.
The sole proprietor (or even one her employees) is involved in a business-related accident in which someone is injured or killed. The resulting negligence case can be brought against the sole proprietor owner and against her personal assets, such as her bank account, her retirement accounts, and even her home.
Consider the preceding paragraphs carefully before selecting a Self Employed mortgage applicants as your business form. Accidents do happen, and businesses go out of business all the time. Any Self Employed mortgage applicants that suffers such an unfortunate circumstance is likely to quickly become a nightmare for its owner.
If a sole proprietor is wronged by another party, he can bring a lawsuit in his own name. Conversely, if a corporation or LLC is wronged by another party, the entity must bring its claim under the name of the company.
The disadvantages of a Self Employed mortgage applicants include:
- Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
- Owners cannot raise capital by selling an interest in the business.
- Self Employed mortgage applicants rarely survive the death or incapacity of their owners and so do not retain value.
One of the great features of a Self Employed mortgage applicants is the simplicity of formation. Little more than buying and selling goods or services is needed. In fact, no formal filing or event is required to form a Self Employed mortgage applicants; it is a status that arises automatically from one’s business activity.
