On a traditional loan, self-employed income comes from your tax returns, with some non-cash expenses added back.
How it works
Qualifying income = average of (net profit + add-backs) over two years
When the latest year is lower than the year before, lenders usually use the lower, more recent year instead of the average. The calculator also shows the change from one year to the next, which underwriters look at first.
Keep in mind
- Owners of S corporations and partnerships may also count their share of business income and W-2 wages, which this simple version does not cover.
- If your returns show low income after write-offs, a bank statement loan may qualify you on more.
Questions
How do mortgage lenders calculate self-employed income?
From your last two years of tax returns: net profit plus non-cash items such as depreciation, averaged over 24 months. A falling income usually means the lower year is used. See also: Self-employed loans.
What if my tax returns show too little income?
Bank statement, P&L and 1099 loans qualify you on deposits or gross income instead. See the bank statement income calculator.
