SALARIED BORROWERS
| SELF-EMPLOYED BORROWERS
SELF-EMPLOYED BORROWERS
SELF-EMPLOYED BORROWERS: A borrower
with a 25 percent or greater ownership interest in a business
is considered self-employed for mortgage loan underwriting
purposes.
Minimum Length of Self-Employment:
Income from self-employment is considered stable and effective
if the borrower has been self employed for two or more years.
The higher incidences of failure during the first few years of
a new business require the following for individuals employed
less than two years:
1) Between one and two years. An
individual self-employed between one and two years must
have at least two years previous successful employment (or
a combination of one year of employment and formal
education or training) in that or a related occupation to
be eligible.
2) Less than one year. The income from
borrower’s self-employed less than one year may not be
considered as effective income.
Documentation Requirements: The
following are required:
1) Signed and dated individual tax
returns, plus all applicable schedules, for the most
recent two years;
2) Signed copies of federal business
income tax returns for the last two years, with all
applicable schedules, if the business is a corporation, an
"S" corporation, or a partnership;
3) A year to date profit-and-loss (P&L)
statement and balance sheet;
4) A business credit report on corporations
and "S" corporations.
Analyzing Income: The underwriter will
need to establish that the borrower's earnings trend over the
previous two years. Annual earnings that are stable or
increasing are acceptable. On the other hand, a borrower whose
business shows a significant decline in income over the period
analyzed may not be acceptable even if current income and debt
ratios meet the guidelines. A very detailed letter of
explanation will be required.
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