Self-Employed Mortgage Questions, Answered Straight.

Fannie Mae treats you as self-employed if you own 25% or more of a business, no matter the structure. That covers sole proprietors, partnerships, S-corps, and LLCs. Below 25%, different documentation applies. This threshold decides which tax returns and which analysis I'll need from you before we go further. (Source: Fannie Mae B3-3.5-01, B3-3.4-19)

Form 1084 lets me add back non-cash expenses: depreciation, depletion, amortization, casualty loss, and business-use-of-home. These lower your taxable income but aren't real cash leaving your pocket, so they raise your qualifying income. Notes payable in under a year and non-deductible meals get subtracted instead. (Source: Fannie Mae Form 1084)

Aggressive deductions lower the taxable net income I can qualify you on. A Schedule C showing $200K in revenue but $150K in write-offs may qualify on only about $50K. Maximizing deductions saves you taxes but shrinks your borrowing power. Talk to your tax professional about timing before you apply. (Source: Fannie Mae B3-3.5)

Ordinary K-1 income counts only if I can confirm it was actually distributed to you, or the business has enough liquidity to support the withdrawal, often a current or quick ratio of 1.0 or higher. A documented, stable distribution history that matches the income used needs no further liquidity test. Loop in your tax professional too. (Source: Fannie Mae B3-3.4-02, B3-3.6-07)

Two years is the standard. One year, meaning a full 12 months on your most recent return, can work if you document a prior history at equal or greater income in the same or a closely related field. Fannie Mae treats this as a real exception, not the norm. (Source: Fannie Mae B3-3.5-01)

Declining income is a red flag. Fannie Mae generally requires using the lower, most recent year, and big drops trigger extra scrutiny or a denial. You'll need to document why it happened and show the decline has stopped. Declines over roughly 20-25% often require added analysis. (Source: Fannie Mae B3-3.5)

Expect two years of personal and business federal returns with all schedules, a year-to-date profit-and-loss statement, sometimes a balance sheet, business bank statements, and proof your business exists. Fannie Mae typically wants a YTD P&L once you apply more than a quarter past year-end. (Source: Fannie Mae B3-3.5-01)

Conventional loans typically offer lower rates, cancelable PMI, and lower long-term cost than non-QM bank-statement loans. A lot of self-employed borrowers who think they need non-QM actually qualify conventional once I apply the add-backs and structuring. I treat bank-statement loans as a fallback, not my first move. (Source: industry comparison; Fannie Mae guidelines)

Yes, but the lender has to run a business cash-flow analysis confirming the withdrawal won't hurt operations. You'll document the funds and show the business can keep running. It's an extra step beyond using personal assets, and it's a common move for first-time buyers. Talk to your tax professional before you pull money out. (Source: Fannie Mae B3-3.5-01)

Sole proprietors report on Schedule C, where net profit drives income. Partnerships and S-corps issue K-1s that need distribution or liquidity verification. 1099 contractors count as self-employed and qualify on net income after expenses, so your gross 1099 figure means nothing to the underwriter. (Source: Fannie Mae B3-3.5, B3-3.4; HUD 4000.1)

Yes. If you qualify using only non-self-employment income, like W-2 wages or retirement, and you don't need business funds, Fannie Mae lets the lender disregard the self-employment income and skip that documentation. The catch is the business can't show a loss that has to count against you. (Source: Fannie Mae B3-3.1/B3-3.5)

The mechanics are similar: net income, add-backs, a two-year standard with a one-year exception. But HUD Handbook 4000.1 requires a manual downgrade if your business income dropped more than 20% over the analysis period. FHA allows more DTI flexibility, while conventional often wins on cost for stronger files. (Source: HUD Handbook 4000.1)