As we enter the new year I wanted to remind you of how lenders are considering self employed income and rental income.  Please use this information as a rule of thumb not an underwriting decision – only income reported on tax returns can be considered – the days of “stated income” are over!
 
If you are self employed as a Sole Proprietor your income will be taken from your filed and signed federal tax return 1040 Schedule C net income after your business expenses have been deducted.  You must have been in the same industry for at least 2 years and normally your income from the last 2 years tax returns will be averaged.
 
If you are self employed as a S Corporation your income will be taken from your filed and signed tax return 1040’s with all Schedules.  W2’s will be matched to 1040 income.  K-1 forms will be matched to corporations listed on page 2 of Schedule E.  Income will be W2 income + non-passive  income less non-passive loss on Schedule E.  You must have been in the same industry for at least 2 years and normally your income from the last 2 years tax returns will be averaged.
 
If you are self employed as a Corporation your income will be taken from your filed and signed tax return 1040’s with all Schedules.  W2’s will be matched to 1040 income.  No K-1 pass through.  Corporate Tax Returns will likely be required.  Existence of the business will be verified via the Secretary of State’s Database.  You must have been in the same industry for at least 2 years and normally your income from the last 2 years tax returns will be averaged.
 
If you are self employed as a Partnership your income will be taken from your filed and signed tax return 1040’s with all Schedules.  K-1 forms will be matched to corporations listed on page 2 of Schedule E.  Income is reported on page 2 of Schedule E.  You must have been in the same industry for at least 2 years and normally your income from the last 2 years tax returns will be averaged.
 
Rental Income:  Income as reported on filed and signed  tax return 1040’s with all Schedules.  Income is reported on page 1 of Schedule E.  Income calculation is gross rent less gross expenses.  There may be a required time of owning the property.