Lender Alerts

Update on Self-Employed Income Analysis for Conventional Loans

Dear Licensed Partner,

Fannie Mae announcement 2014-16 clarified and updated the requirements on analysis and verification of qualifying income for self-employed borrowers.

Effective for all conventional loans submitted on or after March 23, 2015, Sun West will require the following documentation when business income is reported on Schedule K1 and used for qualification:

A) Income Documents:

• Most recent two years individual tax returns (Form 1040) with all schedules
• Most recent two years business tax returns - with Schedule K-1

           o Form 1065 for Partnerships/LLCs

           o Form 1120S for S-Corporations/LLCs 

B) If the borrower’s ownership is 25% or greater, qualifying income from business will be calculated using the LESSER of:

• Borrower’s share of business income per Cash Flow Analysis (Form 1084) OR
• Income distribution to the borrower as verified with Schedule K-1

Sun West Mortgage Company, Inc. will perform an analysis of borrower’s business income to determine stability and continuance. 

C) Use of Business Asset:

• When a borrower intends to use business assets as funds for the down payment, closing costs, and/or reserves, Sun West will perform a business cash flow analysis to confirm that the withdrawal of funds will not have a negative impact on the business.

Additional documentation may be required, such as several months of recent business asset statements and/or current balance sheet.

D) Income Verification for Self-Employed Co-Borrowers:

If you have any questions, please contact your Client Relations Manager at (855) OK-SUNWEST or (855) 657-8693.

Sincerely,

Sun West Mortgage Company, Inc. 18000 Studebaker Road, Suite 200 Cerritos, CA 90703 Phone: (800) 453-7884