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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  Then
Income will NOT be used for qualifying purposes Business-related income documents NOT required

No meaningful business loss is determined from individual tax returns

No additional documentation required 
Meaningful business loss is determined from individual tax returns  Salaried income used to qualify will be reduced by the amount of reported loss and additional income documentation may be required to determine the impact on qualifying income 


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
SW-1: Our New No Overlays Program

 

Equal Housing Opportunity This information is provided to licensed brokers/lenders only and may not be copied or distributed to customers or potential customers. All loans are subject to approval. Certain restrictions may apply. Listed pricing is a morning indication only. Program rates, prices, guidelines, fees, costs, terms and conditions are subject to change without notice.




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