FNMA changed self-employed borrower income calculation for borrowers with 1065 or 1120S K-1 income
Since the self-employed income policy updates were announced last year, lenders have provided feedback regarding the difficulty in obtaining documentation to evidence a borrower’s ongoing access to business income, and asked for additional guidance on how to determine whether the business has adequate liquidity to support the withdrawal of business earnings.
The documentation we currently require may not be readily available or may not directly affirm the borrower’s access to income. Furthermore, some lenders may be generally unfamiliar with methods that may be used to determine adequate business liquidity.
With this Guide update, we are eliminating the requirement for the lender to confirm the borrower can document access to income, such as a partnership agreement or corporate resolution; and providing guidance regarding methods a lender may use when determining adequate business liquidity when that liquidity assessment is required.