Under normal Fannie Mae underwriting standards, a borrower is considered self-employed if he or she owns more than 25% of a business from which income is derived. Any lower percentage ownership and a borrower can simply be considered employed by the firm (Yes, this is a help for co-owners of a small business - if you own less than 25% you don't even have to read this article).
Self-employed borrowers who want to go the full documentation route must be able to provide the following: 1) two years of business tax returns; 2) two years of personal tax returns; 3) a letter from a CPA confirming two years of self-employment; and 4) a year to date profit and loss statement. If there are any problems with this information, then additional documentation will be required, such as letters from accountants, business bank statements or other financial records.
Underwriters average the net income to the business owner over the past two years to obtain an estimate of total income.
If a business owner suffered a difficult year in 2011, but in all years before and after income was significantly higher, then the averaging method of analyzing income would unfairly deny the borrower a standard loan.
Self-employed borrowers who want to go the full documentation route must be able to provide the following: 1) two years of business tax returns; 2) two years of personal tax returns; 3) a letter from a CPA confirming two years of self-employment; and 4) a year to date profit and loss statement. If there are any problems with this information, then additional documentation will be required, such as letters from accountants, business bank statements or other financial records.
Underwriters average the net income to the business owner over the past two years to obtain an estimate of total income.
If a business owner suffered a difficult year in 2011, but in all years before and after income was significantly higher, then the averaging method of analyzing income would unfairly deny the borrower a standard loan.
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Joel Lobb
Senior Loan Officer
Senior Loan Officer
(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
phone: (502) 905-3708
Fax: (502) 327-9119
Company ID #1364 | MB73346
