Self-Employment Income
If the borrower is the business owner or is self-employed, the business owner/self-employed indicator must be checked in the loan application 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. If the ownership share is 25% or more, the income is entered in Monthly Income (or Loss) based on the lender’s calculation of net income (or loss) from self-employment. If the ownership share is less than 25%, the income is entered in Gross Monthly Income (base, bonus, overtime, etc.). Schedule K-1 income for these borrowers should be entered as Other in Gross Monthly 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.
DU will issue a message permitting only one year of personal federal tax returns if the loan application indicates the borrower is self-employed with an ownership share of 25% or more, and the Start Date for all self-employed businesses is at least five years prior to the Casefile Create Date. If any of the borrower's self-employed businesses have a Start Date less than five years, DU will require two years of personal tax returns. DU will issue a separate message listing the requirements for business tax returns for all self-employed businesses, specifying that one- or two-years of tax returns are required based on the number of years the business has been in existence (determined by comparing the Start Date to the Casefile Create Date).
Refer to B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower for additional information and requirements related to underwriting, documenting, and calculating self-employed income.
For additional information, see B3-3.5-01, Income and Employment Documentation for DU.