How will you verify income on a self-employed applicant?
The following factors are reviewed by EOAC underwriters before approving a mortgage for a self-employed borrower:
• Stability of the borrower’s income
• Location and nature of the borrower’s business
• Demand for the product or service offered by the business
• Financial strength of the business
• Ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the requested mortgage.
The documentation that the borrower will be asked to provide includes; the most recent two years of signed individual federal income tax returns IRS Form 1040; (or in some cases where self-employment is greater than 5 years, the most recent one year of signed individual federal income tax returns), and, the most recent two years of business federal income tax returns (IRS Form 1065 or IRS Form 1120S), unless the requirements to waive business tax returns have been met; (or the most recent one year of business federal income tax returns, if permitted)
The borrower will be requested to provide tax return information for any business enterprise where there is >25% ownership. For borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability
company (LLC), ordinary income, net rental real estate income, and other net rental income
reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1 may be used in qualifying the borrower provided:
• The borrower can document ownership share (may use Schedule K-1),
• The borrower can document access to the income, and
• The business has adequate liquidity (e.g. working capital) to support the withdrawal of earnings. A written evaluation of the business income must be retained in the mortgage file.
As a point of quality assurance, all self-employed borrowers will be verified by 3rd party resources, including obtaining IRS transcripts directly. Debts to income ratios for self-employed are typically 45%.
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- What do I do if I can’t retrieve or print out the electronic disclosures, or have some other problem with them?
- What are some tips for completing the online application?
- If my loan application isn’t pre-approved, does that mean you can’t provide me with financing?
- When will I hear from someone after my inquiry/application?