j. Self-Employment Income

Verification

Obtain the following documentation:

·   Current financial statements prepared in a generally recognized format, including:

-   year-to-date profit and loss statement

-   current balance sheet

Note:  The financial statements must be sufficient for a loan underwriter to determine the necessary information for loan approval.  The lender may require accountant-prepared financial statements or financial statements audited by a Certified Public Accountant if needed to make such a determination due to the nature of the business or the content of the financial statements.

·   Individual income tax returns, signed and dated, plus all applicable schedules for the previous two years (or additional periods if needed to demonstrate a satisfactory earnings record). 

·   if the most recent year’s tax return has not yet been prepared, provide a profit and loss statement for that year, and

·   if the business is a corporation or partnership

-   copies of the signed federal business income tax returns for the previous 2 years plus all applicable schedules, and

-   a list of all stockholders or partners showing the interest each holds in the business

Note:  Obtain a written credit report on the business as well as the applicant as needed.

Analysis

Generally, income from self-employment is considered stable when the applicant has been in business for at least 2 years.

·   Less than 2 years cannot usually be considered stable unless the applicant has had previous related employment and/or extensive specialized training.

·   Less than 1 year can rarely qualify.

In-depth development is required for a conclusion of stable income on less than 1 year cases.