Don’t let analysing self-employment income get you down

by Dave Hershman16 May 2017

Part II. Analyzing self-employment income from tax returns has long been one of the mysteries of mortgage underwriting — especially Partnerships and S-Corporations. Any guidance you can provide would be most appreciated.

--Brooke from Ohio

I have asked MGIC's Marketing Department for some help in understanding this type of self-employment.



Last week we ended with the question regarding verification of income in a profitable entity with a history of distributions of profit. We continue with: You’ll need to take it to the next level, verifying that the business has positive sales and earnings trends and the business has adequate liquidity to support the withdrawal. Verifying these factors helps assure that income will be available and is likely to continue and, therefore, is a potentially acceptable source of qualifying income. Conversely, you would deduct from cash flow any loss resulting from your analysis, as it represents a drain on the borrower’s income.

Simple, right? Not always. Keep in mind, as you dive into business returns and start looking at their balance sheets and income statements, you’ll gain a complete understanding of the solvency of the business as well as how sales and earnings have been trending. With that knowledge in hand, you can be confident in your final income used in qualifying.

If you can’t remember how to look at financial statements, have never looked at business returns or just need a refresher, MGIC’s Self-Employed Borrower resource manual is at your rescue! It’ll guide you through the nuances of conducting an analysis of balance sheets, income statements and trend analyses. You can find MGIC’s Self-Employed Resource Guide posted on MGIC

IMPORTANT: Requirements may vary significantly on the use of income from these sources, so always check your investor guidelines.

Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected].

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