1. What is the Mortgage Self Employed Income Calculator?

The Mortgage Self Employed Income Calculator determines the qualified income for self-employed individuals by averaging their income from the last two years. This calculation is commonly used by lenders to assess mortgage eligibility for self-employed borrowers.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• \( Income\ Year1 \) — Income from the first year ($)
• \( Income\ Year2 \) — Income from the second year ($)

Explanation: This calculation provides a simple average of the two most recent years' income, which lenders typically use to establish a stable income baseline for self-employed applicants.

3. Importance of Qualified Income Calculation

Details: Accurate income calculation is crucial for self-employed individuals seeking mortgage approval. Lenders use this average to determine borrowing capacity and ensure the applicant has a stable income history.

4. Using the Calculator

Tips: Enter your income from the two most recent years in dollars. Ensure the values are accurate and represent your actual taxable income as reported on your tax returns.

5. Frequently Asked Questions (FAQ)

Q1: Why do lenders average two years of income for self-employed borrowers?
A: Lenders use a two-year average to establish income stability and reduce the impact of any unusual income fluctuations that might occur in a single year.

Q2: What income documents are typically required?
A: Most lenders require two years of tax returns, including all schedules, and may request profit and loss statements and bank statements.

Q3: Are there any deductions added back to income?
A: Some lenders may add back certain non-cash expenses like depreciation, but this varies by lender and loan program.

Q4: How recent must the income years be?
A: Typically, lenders require the two most recent complete tax years, though some may consider year-to-date information for the current year.

Q5: What if my income has increased significantly in the most recent year?
A: Some lenders may consider an upward trend in income, but most will still rely primarily on the two-year average for qualification purposes.