Effective for FANNIE MAE SELF EMPLOYED case files created on or after January 1st the following changes went into effect for Fannie Mae self-employed borrowers.

If Self Employed less than 5 years, the usual 2 years Self Employed tax returns are typically required. In the case where a borrower has not been Self Employed for two full years, we can still consider the income with the following guidelines.

We will need a minimum of 12 months Self Employed reporting on the most recent tax return. That means an applicant must have been Self Employed as of Jan 1 through Dec 31st. If they opened the business for example on Feb 1st you cannot use that but still require a 12-month average. 12 months must be on the tax return.

The caveat to allowing for one year’s returns and less than two years Self Employed is that you must also be able to document the same or greater income level from the borrower in a similar field or occupation as the business that owned. This is a piece that is going to be very important when going this route.

In addition, Fannie Mae is following Freddie in the rule if you have been Self Employed for five years then we only require 1 year tax return for qualifying a borrower. In order to use a one-year tax return you must have had 25% or greater ownership for the full five years.

LASTLY, the final change for Fannie Mae is they now allow you to waive the requirement for business tax returns when you provide two full years individual tax returns AND

1) An applicant is using personal funds for down payment, closing costs and reserves.

2) An applicant has been Self Employed for at least five years.

3) An applicant’s individual tax returns show an increase in Self Employed income over the last two years.

These are pretty big changes so make sure your entire team is aware.