Freddie Mac – Self-Employed Borrower – LPA Requirements

Question:

My client is self-employed and is paid W-2, and we need to use the one-year of income (2022) to qualify. LPA came back with one year required. Will the underwriter require the 2021 W2 and Tax Returns?

Answer:

Of course, every loan may have specific loan level requirements that only a lender/underwriter can determine is necessary to them……. but generally speaking, if the Automated Underwriting system from LPA or DU only requires one-year returns, then that is all that should be required.

If, for some reason, the DU or LPA feedback certificate is also asking for two years W2’s then that is a different situation, and again, a lender can never require less than what DU or LPA is requiring, but they can request more.

There is no specific requirement that I can point you to within the selling guides that says a borrower must prove they received W2 wages for two years in a row when self-employed. Typically, a lender will only require what DU or LPA will require for documenting the income, and for self-employed borrowers, that is typically one or two years of returns.

If you are getting a one-year return option, the lender must validate that the business has been in existence for 5 years, which is typically done with the business tax returns showing ‘date established’ or ‘in business since.’

Reference:

Freddie Mac Section 5304.1 – Stable monthly income and documentation requirements for self-employed Borrowers