2-9 SELF-EMPLOYED BORROWERSA borrower with a 25 percent or
greater ownership interest in a business is considered self-employed for FHA
mortgage loan underwriting purposes.
The following conditions apply to underwriting self-employed borrowers:
A. Minimum Length of Self-Employment. Income from self-employment is
considered stable and effective if the borrower has been self-employed for two or
more years. The high probability of failure during the first few years of a business
makes the following requirements necessary for individuals who have been selfemployed
less than two years:
1. Between One and Two Years. An individual self-employed between one and
two years must have at least two years of documented previous successful
employment (or a combination of one year of employment and formal education or
training) in the line of work in which the borrower is self-employed or in a related
occupation to be eligible.
2. Less than One Year. The income from a borrower self-employed less than
one year may not be considered effective income.
B. Documentation Requirements. The following documents are required from
October 2003 II-43
1. Signed and dated individual tax returns, plus all applicable schedules, for the
most recent two years.
2. Signed copies of federal business income tax returns for the last two years,
with all applicable schedules, if the business is a corporation, an "S" corporation, or a
3. A year-to-date profit-and-loss (P&L) statement and balance sheet.
4. A business credit report on corporations and "S" corporations.