Section 8.0 Income Documentation
8.1 Income Analysis
The income documentation and calculation per FNMA guides with 2 years verification unless otherwise noted by the program document requirements.
8.1.1 Income Worksheet
The loan file should include Seller’s income calculations, or Amres’s income calculation worksheet detailing income calculations.
Income analysis for borrowers with multiple businesses must show income/(loss) details separately, not in aggregate.
8.1.2 Employment and Income Verification
Most recent two (2) years employment is required to be documented and verified for all income/documentation types unless otherwise noted by specific program requirements.
If any borrower is no longer employed in the position disclosed on the Form 1003 at the Amres purchase date, loan will be ineligible for purchase.
A two-year employment history is required for the income to be considered stable and used for qualifying.
When the borrower has less than a two-year history of receiving income, Seller must provide written analysis to justify the stability of the income used to qualify the Borrower.
8.2 Debt to Income Ratio / DTI
Standard Debt-to-Income (“DTI”) maximums as per Matrix.
DTI is calculated and reviewed for adherence to Fannie Mae guidelines and inclusion of all income and liability expenses.
8.3 Documentation Options
Full income documentation for wage earners and self-employed borrowers. Bank statement documentation for self-employed borrowers.
8.4 Full Income Documentation
8.4.1 Full Doc
Self-employed borrowers:
2 years tax returns (business and personal) including all schedules. YTD P&L (prepared by tax professional) W-2 borrowers:
W-2 for most recent year and 30 day most recent recent paystubs or WVOE Other Requirements:
A verbal VOE from each employer 10-days of the note date for wage and salaried employees. For self-employed verify existence of business within 30-days of the note date with one of the following: Letter from business tax professional. On-line verification from regulatory agency or licensing bureau. Certification verifying business existence through direct contact or internet search. Other Miscellaneous Income
Treatment of miscellaneous income sources follow FNMA guidelines. 8.5 Alternative Income Documentation: 12 or 24 months Bank Statements
8.5.1 Alt‐Doc: 12 or 24 months Bank Statements
For self-employed borrowers. Bank statements (personal and/or business) may be used as an alternative to tax returns to document a self-employed borrower’s income.
At least one of the borrowers must be self-employed for at least 2 years (25% or greater ownership) to qualify for this program.
No 4506-C/tax transcripts/Tax Returns (4506-C required for salaried co-borrowers)
The lower of the stated income on the initial 1003 or UW income analysis is used to qualify.
8.5.2 Alt‐Doc: Bank Statement Restrictions
Excessive NSFs on the bank statements may cause the loan to be ineligible. Business bank statements must be operating account(s) reflecting normal business expenses.
8.5.3 Alt‐Doc: Bank Statement Documentation
Borrower must document two years current continuous self-employment with business license or statement from corporate accountant/CPA confirming the same. Other documentation from third parties may be acceptable on a case by case basis (e.g., letter from an attorney). Acceptable business license must be verified by third party (e.g., government entity, borrower’s business attorney). Borrowers whose self-employment cannot be independently verified are not eligible. In instances where a license is not required (e.g., choreographer), a letter from a CPA confirming employment may be accepted in lieu of a license. 1099 Contractor
A borrower who is a “1099 contractor” may be considered self-employed for this program with confirmation from a CPA that the borrower is a 1099 contractor and files Schedule C or Schedule E with the IRS (personal tax returns). Borrower cannot have ownership of 1099 Payor’s business. See AMRES full Loan Eligibility Guidelines for other income specifics.
8.5.4 Alt‐Doc: Bank Statement Income Analysis
Bank statements are used to calculate and show consistency of income for the self-employed borrower. When using 12 or 24 months of bank statements, no P&L is required.
Personal & Business Bank Statements Combined
If personal and business bank activity are combined in one bank account, borrower is to provide the most recent 24 or 12 months consecutive bank statements from the same account. The bank statements are analyzed per Business Bank Statement Analysis guidance in AMRES full Loan Eligibility Guidelines to determine qualifying income. Standard expense factor applies; 50% expense factor. If the type of business operates more efficiently or typically has a materially different expense factor (higher or lower than standard expense factor), then the expense factor per either a CPA/CTEC/EA letter or P&L may be applied. The minimum expense factor with CPA letter or P&L is 20%. When a CPA or tax preparer produced statement is provided, apply the stated expense factor to calculate the qualifying income ( subject to the minimum expense factors). Provide either of the following: A CPA/CTEC/EA produced written statement/letter specifying the actual expense ratio of the business (including cost of goods sold and all other business expenses) based on the most recent year’s filed tax returns. Such statement shall not include unacceptable disclaimer or exculpatory language regarding its preparation; or, A CPA/CTEC/EA produced Profit and Loss (P&L) statement that has been reviewed by the CPA/CTEC/EA, the CPA/CTEC/EA states they have reviewed the P&L in writing, and the P&L and accompanying statement do not have unacceptable disclaimer or exculpatory language regarding its preparation. The expense factor per the P&L or CPA/CTEC/EA produced statement must be reasonable. The annual deposits on the bank statements must be at least 75% of the gross receipts per the P&L. When the borrower is an inter vivos trust, personal bank statements in the name of the trust are allowed for qualification. Personal & Business Bank Statements Separated
If the borrower maintains separate bank accounts for personal and business, only personal bank statements are used for qualifying. The borrower is to provide the most recent 24 or 12 months consecutive personal bank statements and three (3) months business bank statements (to support the borrower does maintain separate accounts, and to show business cash flows in order to utilize 100% of business-related deposits in personal account). The deposits are analyzed and averaged to determine monthly income. Deposits to a personal account from sources other than self-employment is not to be included. When the borrower is an inter vivos trust, personal bank statements in the name of the trust are allowed for qualification. Business Bank Statements Only
If only using business bank statements, borrower is to provide the most recent 24 or 12 months consecutive business bank statements. The bank statements are analyzed per Section 8.7.5 to determine monthly income. Standard expense factor applies; 50% expense factor. If the type of business operates more efficiently or typically has a materially different expense factor (higher or lower than 50%), then the expense factor per either a CPA/CTEC/EA letter or P&L may be applied. The minimum expense factor with CPA letter or P&L is 20%. When a CPA or tax preparer produced statement is provided, apply the stated expense factor to calculate the qualifying income. Provide either of the following: A CPA/CTEC/EA produced written statement/letter specifying the actual expense ratio of the business (including cost of goods sold and all other business expenses) based on the most recent year’s filed tax returns. Such statement shall not include unacceptable disclaimer or exculpatory language regarding its preparation; or, A CPA/CTEC/EA produced Profit and Loss (P&L) statement that has been reviewed by the CPA/CTEC/EA, the CPA/CTEC/EA states they have reviewed the P&L in writing, and the P&L and accompanying statement do not have unacceptable disclaimer or exculpatory language regarding its preparation. The expense factor per the P&L or CPA/CTEC/EA produced statement must be reasonable. The annual deposits on the bank statements must be at least 75% of the gross receipts per the P&L. The bank statements should show a trend of ending balances that are stable over the 24 or 12 month period.
Large deposits inconsistent with history must be documented as business income. Net deposits must not reflect any other income sources already taken into consideration (i.e. deduct SS payments, W-2 wage earnings, etc., that have already been used for income calculation). See AMRES full Loan Eligibility Guidelines for Bank Statement Income Analysis Guidance.
Income Documentation