Selling Guide

Published June 02, 2021

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Is a cash flow analysis required when evaluating personal income for a self-employed borrower?

Analysis of Borrower’s Personal Income

The lender must prepare a written evaluation of its analysis of a self-employed borrower’s personal income, including the business income or loss, reported on the borrower’s individual income tax returns. The purpose of this written analysis is to determine the amount of stable and continuous income that will be available to the borrower. This is not required when a borrower is qualified using only income that is not derived from self-employment and self-employment is a secondary and separate source of income (or loss). Examples of income not derived from self-employment include salary and retirement income.

The lender may use (Form 1084)* or any other type of cash flow analysis, including automated tools, that applies the same principles as Fannie Mae’s form.

A copy of the written analysis must be included as part of any loan application package that the lender submits to Fannie Mae for a mortgage that is selected for a post-purchase quality control review.

The lender may use a Fannie Mae-approved vendor tool to complete the written analysis and calculate self-employment income. The lender may receive representation and warranty enforcement relief of the calculated amount if certain requirements are met. See A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties for Mortgages Submitted to DU and Fannie Mae’s website for the list of Approved Vendor Tools.

For additional information, see B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower

*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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