We often have self-employed borrowers come to us who are rolling in profits and cash, with perfect credit and everything else a good borrower needs. BUT, they do not qualify for conforming financing.
The reason is that they often lack the necessary income history. We almost always have to average the last two years of tax returns no matter how well a borrower is doing currently.
If a borrower netted $200,000 in 2017, for example, but only $50,000 in 2016, and $0 in 2015, we cannot use his 2017 income at all until he files his 2017 taxes.
And, even when he does file his 2017 taxes, we will still have to average his last two years, giving him only $125,000 for qualifying purposes.
The same is true for salaried or W2 borrowers who receive a large portion of their income in the form of bonuses or commissions. We need a two-year history of the bonuses and commissions to use them in qualifying income calculations.
We once had a customer who had left his law practice ten months earlier to become a sales manager for one of his former clients. He was on track to earn over $350,000, but he qualified for very little b/c most of his income was commissions. Since he had no commission history, we could only use his base pay of $80,000 for qualifying purposes.
**In some instances, we may be able to average only the most recent year of self-employed income per filed tax return, but this cannot be determined until we have a full file on-hand and can run our automated underwriting system. Bonus and commission always require a two-year history.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167