Mortgages and the Self Employed Borrower

For loan purposes we consider a self employed borrower to be someone who holds 25% or more interest in the company regardless of how much the business contributes to their total income.

• Federal tax returns for the last 2 years including all schedules are used to calculate income.
• The existence of the business must be verified by a third party source 

For the self employed borrower, write offs on taxes although beneficial for minimizing taxes owed can also minimize income to qualify.

The following tax deductions are allowed to be added back into the net income.

• Depreciation
• Depletion
• Amortization
• Documented non recurring losses, such as casualty losses or loss-carryovers from previous years

A two year average is established using the tax returns.  However, if the income is declining the lowest annual income will be used and the underwriter will want an explanation for the declining income.