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Revised Self-employment rules

February 5th, 2022 11:34 AM by Sam Kader

Effective 2/2/2022 -  Self-employed borrowers are no longer required to provide Current Year-To-Date (YTD) Profit and Loss and  Business assets to prove stability of their self-employment income/business. Verification of self-employment business and previous 2 years Personal and Business Tax Returns still apply for all loans using self-employment income.  Only current year YTD Profit and Loss and business assets are removed.  


The below rules posted on June 11th 2020 are no longer in effect. 

The financial impact of COVID-19 has befallen many businesses and resulted in a disruption of normal underwriting process. 

Some of those changes in mortgage underwriting since March 2020 include: 
  • Income Verifications. Self-Employed borrowers' incomes are typically verified using the most recent two-years of income tax filings.  
  • Starting June 11th, 2020 and until further notice:   In-addition, self-employed borrowers must also provide current Year-to-Date Profit and Loss Statements (P&L). This report could be audited or unaudited/self-prepared. P&L must not be older than 60 days as of the note date. 
  • Audited YTD Profit and Loss Statement must be completed by a Certified Public Accountant (CPA).  Sorry your tax preparer or general accountant cannot prepare this report. It must be done by a CPA. 
  • Unaudited YTD Profit and Loss Statement can be self-prepared or by tax preparer or by your general accountant. However, it must be accompanied by 2 most current bank/business depository account(s) statements (no older than the latest 2 months represented on the year-to-date Profit and Loss Statement). Gross bank deposits from these bank statements must support their current Year-To-Date Profit and Loss Statement or at least Self-Employment Net Income as reported in prior year's Tax Returns.  Higher current Year-To-Date Profit and Loss Net Income will not help raise self-employment income higher than the prior year's self-employment net income as filed in Tax Returns.  
The Profit and Loss Statements must include the following items:  
  • Business Revenue
  • Expenses
  • Net Income (Including the most recent month preceding the date of Loan Application
Should supporting information be found lacking in some manner:  The Mortgage Lender is required to obtain additional statements or other documentation that will support the information provided from the current year-to-date Profit and Loss Statement. 

The above information can seem a bit confusing. Please work with an experienced and knowledgeable local mortgage broker well in advance to discuss your financing options. The more time you have, the more easily and quickly you will successfully navigate your mortgage process. 



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