Self-Employed Borrowers

Listing agents are often wary of accepting contracts from self-employed borrowers for a few reasons, so I thought I’d share these challenges and how we overcome them.

  • Problem: Many loan officers simply don’t know how to calculate self-employed income
    • The number one reason why self-employed borrowers get a bad reputation for approvability is that many loan officers do not review tax returns ahead of time and calculate income correctly. They simply do not know what lines to add, subtract, and can’t calculate the income correctly. Tax returns can be complicated, particularly when there are both business and personal tax returns, and multiple investment properties.
      • Solution: By properly documenting income during the pre-approval, and using Fannie Mae’s or Freddie Mac’s worksheet for calculating income, I can know the borrower’s income before they make an offer.
        • For a self-employed borrower, we cannot calculate income without two years of tax returns and a year-to-date profit and loss statement.


  • Problem: Declining Income
    • If a borrower’s income declines from one year to the next, an underwriter sees uncertainty in the future sustainability of this income. Particularly with self-employed borrowers, when there is a downward trend, an underwriter may choose to not consider declining income for qualifying income at all.
      • Solution: I look at all possible opportunities to get around the declining income problem. We do this in many ways, for instance:
        • Some loan programs allow a waiver to only review one year’s worth of tax returns
        • If income declined because two years ago there was solely an exceptionally good year, then we may use multiple years of tax returns to show that the decline in income is not a trend, but rather the past year’s income is normal and stable.
        • If the current year’s income has increased or is on pace to match income from two years ago, with documentation the underwriter can understand although the income declined previously, it is once again on the rise.