Sole Prop Basics
What % ownership is considered self-employer per mortgage standards?
25%
What tax form do we review to evaluate a Sole Prop business?
Schedule C
Where is the first place in a loan you should notice we have SE?
Within the 1003 look to see if SE and ownership % box are marked
If we are taking a 24 month average to determine the qualifying income, what income trend do we have?
We have an increasing income trend.
What number do you start with for you calculation on Schedule C?
Net Profit (Line 31)
Excluding exceptions, what % ownership is a Sole Prop?
100%
Where would you locate a Schedule C?
How many years of tax returns are required for a SE borrower?
2 years with the exception of only 1 year if business has been around for more than 5 years with AUS approval.
If we have a declining trend what do we need in order to be able to use the SE income?
Need the decline has stabilized.
Can you use all income listed?
No, need to prove history of reoccurring income in order to use. If no history this needs to be subtracted.
What is the required self-employment history required to be able to use SE income?
Two years of SE history, with the exception of being able to use one year history with work history from similar industry.
If the bwr shows a negative business income. Do we have to use it?
Only if we are using any business income.
If we have a bwr who doesn't indicate they are SE on 1003 what are some things that would tip us off?
1. Employer Name: Same last name, Similar Letter pattern
2. Position: President, CEO, Owner, Managing Member
3. Employer address: Same as REO
4. Email address
5. Fraud report: Links between addresses, phone numbers, etc.
What two situations can we use the most current tax return income alone as qualifying income?
1. Business that has been around for more than 5 years.
2. Declining income trend with proof of stability.
What expenses can we remove?
non-cash expenses
business use of home
business mileage
What is an example of a situation where a sole prop isn't 100%?
Specific tax situation where husband and wife hold 50% ownership of sole prop.
What is the difference between Deprecation, Depletion, and Amortization?
All are non-cash expenses.
Deprecation is the loss in value of a physical asset
Depletion is the loss in value of a resource
Amortization is the loss in value of a non-physical asset
If bwr doesn't indicate SE on 1003, but you suspect they are SE how would you confirm?
1. Google University
2. Pull public Business licenses
Explain how to get qualifying income in the following situations:
1. Increasing Trend
2. Stable / Decreasing trend
1. 24 month Average
2. Most recent year only, if decreasing also need proof of stability
What expense needs to be added?
50% of meal expenses.