Calculating income for self-employed borrowers is not easy and can be time consuming and complicated for even the most seasoned originators. With a growing workforce of self-employed borrowers, and multiple options available, lenders need a clear way to calculate income that’s both accurate and efficient. With Fannie Mae’s latest solution, we offer a new way to calculate income that increases the certainty of the calculation and helps reduce cycle time.
Available initially through authorized technology service providers, the income calculator helps lenders:
- Easily calculate income for self-employed borrowers.
- Maximize the borrower’s income by utilizing allowable add-backs not found in 4506-C tax return transcript data, which may result in better pricing/lower DTI due to higher income being calculated.
- Determine the qualifying monthly income before submitting to DU.
- Be eligible for enforcement relief of rep and warrant on the income calculation.
How the Income Calculator Works
Borrower provides lender with tax returns during the application process or authorizes technology service provider (TSP) to extract tax return data from authoritative source (such as an e-filer).
Lender requests TSP to extract data from tax returns (provided either by the lender or obtained directly by the TSP from another authoritative source). *
Tax return data is submitted to the income calculator, and the results are relayed to the lender through the TSP interface.
Lender validates the accuracy of the data provided to the calculator by the TSP.
Lender retains a findings summary in the loan file.
Lender submits the qualifying income amount to DU or uses the amount to manually underwrite the loan. If all conditions are met, the loan is eligible for enforcement relief from reps and warrants related to the income calculation.
*(Coming soon) In our future web interface offering, lenders can input data from tax returns directly.
Other available methods to calculate self-employed income include:
DU validation service – Lenders using DU can leverage the DU validation service and tax return transcripts from an authorized report provider to verify self-employed income for sole proprietors – Schedule C.
|Fannie Mae Income Calculator integrated through TSP
|Fannie Mae Income Calculator web interface (coming soon)
|DU validation service
|Approved vendor tools
|What data is needed?
|How is the data extracted?
|Exported from e-filers or Optical Character Recognition technology
|Manual data input
|Report provider obtains data from IRS
|Optical Character Recognition
|Component eligible for enforcement relief of reps and warrants?
|Income calculation and data integrity
|When is the tool available?
|Now (through DU)
|Is there a cost?
|Yes – through contract with an authorized TSP
|Yes – through contract with an authorized report provider
|Yes – through contract with an approved vendor
|What is the response time?
|~2 hours based on TSP response
|~5 days based on IRS response
|~2 hours based on vendor response
|Does it collect NPI?
|What self-employment types are eligible for enforcement relief?
|All self-employment types, excluding rental income (varies by TSP)
|All self-employment types, excluding rental income
|Sole Proprietors - Schedule C
|All self-employment types, including self-employment income generated from rental properties
|Who maintains the calculation?
|Vendor (with Fannie Mae oversight)