Selling Guide

Published April 07, 2021

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When does DU allow for one year of personal and business tax returns for self-employment income?

Self-Employment Income

For DU loan casefiles where two years of the most recent signed personal and two years of the most recent signed business federal income tax returns are required, business tax returns do not have to be provided unless the business is a corporation, an S corporation, a limited liability company, or a partnership. Under certain conditions, the requirements for business tax returns may be waived. 

For certain loan casefiles, DU will issue a message permitting only one year of personal and business tax returns, provided lenders document the income by 

  • obtaining signed individual and business federal income tax returns for the most recent year, 
  • confirming the tax returns reflect at least 12 months of self-employment income, and 
  • completing Fannie Mae’s Cash Flow Analysis (Form 1084)* or any other type of cash flow analysis form that applies the same principles. 

Refer to B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower for additional information about waiving the business return requirement and for required forms and calculations. A copy of the written analysis must be included in the permanent loan file. 

Form 1003 7/05 (rev. 6/09): If the borrower is the business owner or is self-employed and has an ownership share of 25% or more, the self-employment indicator must be checked. DU will consider the borrower self-employed. The net income from self-employment must be entered in the Base Income field in Section V. 

Form 1003 1/2021: If the borrower is the business owner or is self-employed, the business owner/self-employed indicator must be checked along with the percentage of ownership. DU will consider the borrower self-employed if the ownership share is 25% or more, or if the ownership share is not completed but the business owner/self-employed indicator is checked. The lender’s calculated net income (or loss) from self-employment must also be entered. 

For additional information, see B3-3.5-01, Income and Employment Documentation for DU.

*For a complete list of forms used in fulfilling requirements contained in the Selling and Servicing Guides, see the Guide Forms page.

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