Business Assets

Business Assets

BUSINESS ASSET DOCUMENTATION REQUIREMENTS

Asset Statements
Fannie Mae: Two months of business asset statements
Freddie Mac: Three months of business asset statements when using business assets to analyze the health of the business. Otherwise, one month business asset statement is required.
FHA: One month business asset statement (two months if stocks/bonds)
VA: One month business asset statement
USDA: Two months of business asset statements

Business Tax Returns
If income is being used from the business, the business’ tax returns are required. Tax returns do not need to be provided if the borrower is qualifying without using business income.

ACCOUNT OWNERSHIP – ALL PRODUCTS EXCEPT NON-AGENCY
Assets held in a business account provided for funds to close or reserves can be used as long as the borrower is an owner of the business, regardless of the borrower’s ownership percentage.

ACCOUNT OWNERSHIP – PRIME JUMBO AND MI BUSTER
The ownership of the business asset account is documented differently depending on the borrower’s ownership percentage and whether they are listed on the account statement as outlined below:
When the borrower is 100% owner of the business, no additional documentation is required.
When the borrower owns < 100% of the business but the borrower is listed as the owner of the bank account on the statement, then no additional documentation is required.
If the borrower owns < 100% of the business and is not listed on the statement, then additional evidence from the bank must be obtained to show that the borrower has access to the funds.

HEALTH OF THE BUSINESS ANALYSIS – CONVENTIONAL, VA, FHA LOANS
When income from the business is being used to qualify, a Health of the Business Analysis must be performed to determine the liquidity of the business. These tests show that the health of the business will not be negatively impacted once the funds have been withdrawn.
Business assets only need to be proven liquid under one of the seven options below when income is being used to qualify. If business income is not being used to qualify, there is no need to analyze the health of the business.
Note that while FHA will accept a CPA letter attesting that the health of the business will not be affected by the withdrawal of assets, FNMA and FHLMC will not.

OPTION 1
If using two months of asset statements: compare the beginning balance of the previous month’s statement with the ending balance of the most recent month’s statement. If the most recent ending balance is greater than the beginning balance of the previous month, all funds on the most recent statement can be used.
Freddie Mac requires the above process to be completed with three months of business asset statements.
OPTION 2
If using two months of asset statements: if the daily balance section is reported on the bank statements, the lowest daily balance over the two-month period is the amount of funds that can be used in the loan transaction without negatively impacting the health of the business.
Freddie Mac requires the above process to be completed with three months of business asset statements.
OPTION 3
Review total assets listed on the most recent year of business tax returns. Any funds that have been documented on business asset statements can be used up to 50% of the amount of Total Assets listed on page 1 of the business tax returns.
OPTION 4
Compare Total Assets on page 1 of the business tax returns over the last two years. If the amount is greater on the most recent year, all documented business assets can be used.
OPTION 5
Review the balance sheet (Schedule L) from the 1065, 1120S, or 1120 to determine the liquidity of the business. Follow these two steps:
Determine if the current assets are greater than or equal to the current liabilities.
On Schedule L of the 1065, the current assets are the sum of lines 1, 2, 4, 5 & 6, and the current liabilities are lines 15-17.
On Schedule L of the 1120S, the current assets are the sum of lines 1, 2, 4, 5 & 6, and the current liabilities are lines 16-18.
On Schedule L of the 1120 the current assets are the sum of lines 1, 2, 4, 5, & 6, and the current liabilities are lines 16-18.
If the assets are equal to (or exceed) the liabilities, the business is considered stable and the business assets can be used.
OPTION 6
Take the sum of the total business expenses from the required years of tax returns (based on the AUS findings) and divide by the number of months in the years required by AUS. Multiply this number by 2, representing two months business reserves. Deduct this figure from the ending balance on the business bank statement. The remaining balance can be used to close. Note that depreciation can be removed from the total business expense figure when using this option.
OPTION 7
Reduction to Income: Treat the withdrawal of business funds as a hit to the borrower’s self-employed income as if it was an advance on future pay.
USDA
USDA loans can use all business funds as long as it is documented that the borrower is 100% owner of the business.

Business Tax Returns

First-Time Homebuyer Counseling Tools

EDUCATION COURSES FOR YOUR HOMEREADY® AND HOME POSSIBLE® BORROWERS When borrowers purchase their first home through the HomeReady® or Home Possible® programs, they are often required by Fannie Mae or Freddie Mac to complete a homebuyer education course to help them...

GET PREAPPROVED FOR A MORTGAGE

Show sellers that you're serious with a pre-approval letter from Northeastern Realty.

Freddie Mac

Business returns are always required for self-employed borrowers for businesses from which income is being used to qualify. If 1040s show a business loss, the underwriter will include the loss but does not need to condition for business returns.

Fannie Mae

Business tax returns may be waived if the borrower is paying the down payment and closing costs with his or her own funds, the borrower has been self-employed in the same business for at least five years, and the borrower’s individual tax returns show an increase in self-employment income over the past two years.

NMLS #2179146

NMLS #2179146

FHA (non-streamline)

Business returns for the previous 2 years are required UNLESS:

Personal tax returns show increasing self-employment Income over the past two years;

Funds to close are not coming from business accounts; AND

The transaction is not a cash-out refinance.

VA (non-IRRRL)

No business tax returns are required if all of the following conditions are met:

Borrower proves ownership of the business for at least the past 5 years;

Individual tax returns show consistent income for the past 2 years; AND 

Funds to close are not from the business.

What documents should I be ready to provide for a pre-approval?

1. Identification

Government issued ID for each borrower – this can be a state-issued driver’s license, birth certificate, or passport.

2. Proof of Income

Employees – most recent pay stubs

Self-employed – profit and loss statement

Passive income – most recent financial asset statements

3. Financial Asset Statements – At least two months of your most recent statements, including:

Bank checking and savings

Brokerage

Retirement fund – 401K, pension, self-funded ( ROTH, SEP, Individual), annuities

Trust

4. Tax Returns

Employees – W-2 forms and tax returns for the last two years.

Self Employed – Profit and loss statements, 1099, and tax returns for the last two years.

Passive Income – Tax returns for the last two years.

Alimony – Child Support – Separate Maintenance Payments History

First-Time Homebuyer Counseling Tools

EDUCATION COURSES FOR YOUR HOMEREADY® AND HOME POSSIBLE® BORROWERS When borrowers purchase their first home through the HomeReady® or Home Possible® programs, they are often required by Fannie Mae or Freddie Mac to complete a homebuyer education course to help them...

GET PREAPPROVED FOR A MORTGAGE

Show sellers that you're serious with a pre-approval letter from Northeastern Realty.

Freddie Mac

No less than 6 months of the borrower’s most recent regular receipt of payment is required to document alimony/child support/separate maintenance as income.

Fannie Mae

No less than 6 months of the borrower’s most recent regular receipt of full payment is required to document alimony/child support/separate maintenance as income.

NMLS #2179146

NMLS #2179146

FHA (non-streamline)

When a final divorce decree or support order is used to document the income, a minimum of 3 months’ receipt is required.

When using evidence of voluntary payments, a minimum of 12 months’ consistent receipt is required.

If the income has not been consistently received for the most recent 6 months, the income must be average over the previous two years (or over the time period the income was received when less than 2 years.)

VA (non-IRRRL)

Proof of deposits on bank statements for 3 months, and front page and details of support payments from the divorce decree, indicating evidence of at least 3 years continuance is required.

What documents should I be ready to provide for a pre-approval?

1. Identification

Government issued ID for each borrower – this can be a state-issued driver’s license, birth certificate, or passport.

2. Proof of Income

Employees – most recent pay stubs

Self-employed – profit and loss statement

Passive income – most recent financial asset statements

3. Financial Asset Statements – At least two months of your most recent statements, including:

Bank checking and savings

Brokerage

Retirement fund – 401K, pension, self-funded ( ROTH, SEP, Individual), annuities

Trust

4. Tax Returns

Employees – W-2 forms and tax returns for the last two years.

Self Employed – Profit and loss statements, 1099, and tax returns for the last two years.

Passive Income – Tax returns for the last two years.

First-Time Homebuyer Counseling Tools

First-Time Homebuyer Counseling Tools

EDUCATION COURSES FOR YOUR HOMEREADY® AND HOME POSSIBLE® BORROWERS When borrowers purchase their first home through the HomeReady® or Home Possible® programs, they are often required by Fannie Mae or Freddie Mac to complete a homebuyer education course to help them...

GET PREAPPROVED FOR A MORTGAGE

Show sellers that you're serious with a pre-approval letter from Northeastern Realty.

EDUCATION COURSES FOR YOUR HOMEREADY® AND HOME POSSIBLE® BORROWERS

When borrowers purchase their first home through the HomeReady® or Home Possible® programs, they are often required by Fannie Mae or Freddie Mac to complete a homebuyer education course to help them better understand the financial responsibilities of owning a home. The courses below provide a number of options for you to share with your borrowers, and they all follow guidelines from the National Industry Standards for Homeownership Education and Counseling.

CREDITSMART HOMEBUYER U

 

NO COST


Homebuyer U is a free, interactive course made up of six modules that borrowers can complete at their own pace from a desktop, tablet or mobile.

HOMEVIEW

NO COST


HomeView is a free online course accessible from a desktop, tablet or mobile and is made up of seven modules. It takes about 3-4 hours to complete, and borrowers can pause and resume at any time.

NMLS #2179146

NMLS #2179146

PATHWAYS TO HOMEOWNERSHIP

NO COST


Through Pathways to Homeownership, borrowers receive counseling and education on the benefits and challenges of owning a home to prepare to handle the expenses and responsibilities that will arise — and know where to turn for help.

FINALLY HOME!

$0-$70


Finally Home! is a self-paced, mobile friendly, online homebuyer education course made up of seven chapters that guides your borrowers through the homebuying process from start to finish. Pricing is based on the borrower’s income and determined during course registration.

What documents should I be ready to provide for a pre-approval?

1. Identification

Government issued ID for each borrower – this can be a state-issued driver’s license, birth certificate, or passport.

2. Proof of Income

Employees – most recent pay stubs

Self-employed – profit and loss statement

Passive income – most recent financial asset statements

3. Financial Asset Statements – At least two months of your most recent statements, including:

Bank checking and savings

Brokerage

Retirement fund – 401K, pension, self-funded ( ROTH, SEP, Individual), annuities

Trust

4. Tax Returns

Employees – W-2 forms and tax returns for the last two years.

Self Employed – Profit and loss statements, 1099, and tax returns for the last two years.

Passive Income – Tax returns for the last two years.