Self-Employed Borrower: Case Study Part I: Completing the Form 91 with Personal Tax Returns (Webinar Slides)
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Apr 05, 2013
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About This Presentation
Session 1 takes the participant through a review of Freddie Mac's Form 91. The participant will calculate the qualifying income for a fictitious couple by entering their tax return data on the Form 91. For more info: www.nafcu.org/genworth
Slide Content
Tax Return Review Using Form 91
Case Study Part 1
©2012 Genworth Financial, Inc. All rights reserved.
Case Study Part 1
©2012 Genworth Financial, Inc. All rights reserved.
SEB-
Form 91
Objective
Understand the meaning of “Self Employed”
Learn to use Freddie Mac’s Form 91 to calculate supportable
income for self-employed borrowers using tax returns.
Complete Freddie Mac’s Income Analysis Form 91
–Calculate Expenses reported on a 2106 (Un-reimbursed Business
Expenses) Schedule A
–Calculate income from a Schedule C (Sole Proprietor) or 1099
Borrower
–Consideration of Capital Gains & Losses Schedule D
–Calculating Net Rental Income from Schedule E
–Calculating income from a Schedule F (Farm)
SEB-Form 91
Form 91
Objective
Understand the meaning of “Self Employed”
Learn to use Freddie Mac’s Form 91 to calculate supportable
income for self-employed borrowers using tax returns.
Complete Freddie Mac’s Income Analysis Form 91
–Calculate Expenses reported on a 2106 (Un-reimbursed Business
Expenses) Schedule A
–Calculate income from a Schedule C (Sole Proprietor) or 1099
Borrower
–Consideration of Capital Gains & Losses Schedule D
–Calculating Net Rental Income from Schedule E
–Calculating income from a Schedule F (Farm)
SEB-Form 91
2
IRS 4506-t or similar forms
–Allows lenders to obtain transcripts of
the tax returns for borrowers for free.
–Once signed and dated by applicant
the form is good for 120 days.
–4506 or 8821 may also be used in lieu
of the 4506-t but these forms typically
cost to execute.
–Fannie Mae & Freddie Mac policy
requires the form to be signed at
application and again at closing if it
was not executed.
–Lenders typically may use discretion
as far as executing it with the IRS but
Fannie Mae “highly recommends “ it.
IRS Form 4506-t
®Desktop Underwriter is a registered trademark of FannieMae
www.irs.gov
SEB-
Form 91
SEB-Form 91
IRS 4506-t or similar forms
–Allows lenders to obtain transcripts of
the tax returns for borrowers for free.
–Once signed and dated by applicant
the form is good for 120 days.
–4506 or 8821 may also be used in lieu
of the 4506-t but these forms typically
cost to execute.
–Fannie Mae & Freddie Mac policy
requires the form to be signed at
application and again at closing if it
was not executed.
–Lenders typically may use discretion
as far as executing it with the IRS but
Fannie Mae “highly recommends “ it.
IRS Form 4506-t
®Desktop Underwriter is a registered trademark of FannieMae
www.irs.gov
SEB-
Form 91
SEB-Form 91
Sample 4506t results
SEB-Form 91
SEB-Form 91
4506T Review
Verify-
–Name
–Address
–SS#
Review-
–Wages/W-2 Reported Line 7
–Alimony Received Line 11
–Schedule C Income/Loss Reported Line 12
–Scheduled D Capital Gains/Losses Reported Lines 13 & 14
–Schedule E Rental, K-1 1065, K-1 1120S, Trust Income/Losses Reported Line 17
–Schedule F Farm Income/Loss Reported Line 18
–Unemployment Compensation Received Line 19
–Alimony Paid Line 31a
–Schedule A Itemized Deductions
•Mortgage Interest Paid
•Real Estate Tax Deduction
•2106 Expenses
4 SEB-Form 91
Verify-
–Name
–Address
–SS#
Review-
–Wages/W-2 Reported Line 7
–Alimony Received Line 11
–Schedule C Income/Loss Reported Line 12
–Scheduled D Capital Gains/Losses Reported Lines 13 & 14
–Schedule E Rental, K-1 1065, K-1 1120S, Trust Income/Losses Reported Line 17
–Schedule F Farm Income/Loss Reported Line 18
–Unemployment Compensation Received Line 19
–Alimony Paid Line 31a
–Schedule A Itemized Deductions
•Mortgage Interest Paid
•Real Estate Tax Deduction
•2106 Expenses
4 SEB-Form 91
Does your borrower own 25% or more
of a business?
5
Does checking the Self Employed Indicator to yes-
increase the risk of the loan when evaluated by LP?
SEB-Form 91
of a business?
5
Does checking the Self Employed Indicator to yes-
increase the risk of the loan when evaluated by LP?
SEB-Form 91
Self Employed Indicator
SEB-Form 91
SEB-Form 91
Does your borrower own 25% or more
of a business?
7
Does checking the Self Employed Indicator to yes-
increase the risk of the loan when evaluated by DU?
Yes
No
SEB-Form 91
of a business?
7
Does checking the Self Employed Indicator to yes-
increase the risk of the loan when evaluated by DU?
Yes
No
SEB-Form 91
SEB-Form 91
You’ll Need-
You’ll Need-
SEB-Form 91
The Case Study…
The Case Study is a married couple John & Mary
Homeowner
Mary receives a W2 & a K 1 from a business she owns
67% of Zen Today, Inc. She has declared un-reimbursed
expenses against that income on a #2106.
Mary also operates a Sole Proprietorship that she
operates out of their home.
John owns 58% of an LLC. The LLC files a 1065 and
issued John a K 1. Recycle Fitness, LLC. He has
declared un-reimbursed expenses against that income.
Mary & John also own a Rental Property and a Apple
Orchard.
The Case Study…
The Case Study is a married couple John & Mary
Homeowner
Mary receives a W2 & a K 1 from a business she owns
67% of Zen Today, Inc. She has declared un-reimbursed
expenses against that income on a #2106.
Mary also operates a Sole Proprietorship that she
operates out of their home.
John owns 58% of an LLC. The LLC files a 1065 and
issued John a K 1. Recycle Fitness, LLC. He has
declared un-reimbursed expenses against that income.
Mary & John also own a Rental Property and a Apple
Orchard.
SEB-Form 91
Income Analysis Form 91
http://freddiemac.com/learn/uw/form_91.html
This is an interactive tool, you can enter data and
The website will do the calculations but remember
Garbage in Garbage out!
Income Analysis Form 91
http://freddiemac.com/learn/uw/form_91.html
This is an interactive tool, you can enter data and
The website will do the calculations but remember
Garbage in Garbage out!
SEB-Form 91
Income Analysis Form 91 Cheat Sheet
Income Analysis Form 91 Cheat Sheet
SEB-
Form 91
Income Analysis Form 91
Individual Tax Return (1040) 2011
1. W-2 Income from SE
Are any W2 wages filed? If yes, does the
borrower own more than 25% of the entity
that issued the W2?
SEB-Form 91
Form 91
Income Analysis Form 91
Individual Tax Return (1040) 2011
1. W-2 Income from SE
Are any W2 wages filed? If yes, does the
borrower own more than 25% of the entity
that issued the W2?
SEB-Form 91
SEB-Form 91
Form 1040
We will use the 1040 to identify the
if any wages were reported (line
7).Then we will review the
corresponding W2 forms.
Page 3
Form 1040
We will use the 1040 to identify the
if any wages were reported (line
7).Then we will review the
corresponding W2 forms.
Page 3
Income Analysis Form 91
Individual Tax Return (1040) 2011
1. W-2 Income from SE
Page 2
Is Mary Self Employed?
SEB-Form 91
Individual Tax Return (1040) 2011
1. W-2 Income from SE
Page 2
Is Mary Self Employed?
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Page 13
Individual Tax Return (1040) 2011
1. W-2 Income from SE
When a Borrower files a K1 it must be reviewed for % of ownership and
potential losses!
Income Analysis Form 91
Page 13
Individual Tax Return (1040) 2011
1. W-2 Income from SE
When a Borrower files a K1 it must be reviewed for % of ownership and
potential losses!
SEB-Form 91
1120S K1
Page 35
1120S K1
Page 35
Income Analysis Form 91
Individual Tax Return (1040) 2010 2011
1. W-2 Income from SE 73,500 74,700
Page 2
SEB-Form 91
Individual Tax Return (1040) 2010 2011
1. W-2 Income from SE 73,500 74,700
Page 2
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Total Expenses (-) 0 (-)________
Depreciation (+) 0 (+)________
2. Form 2106-Employee Business Expenses
Check Schedule A to see if a #2106 form has been
completed by the borrower.
2010 2011
Income Analysis Form 91
Total Expenses (-) 0 (-)________
Depreciation (+) 0 (+)________
2. Form 2106-Employee Business Expenses
Check Schedule A to see if a #2106 form has been
completed by the borrower.
2010 2011
Did Your Borrower file a Schedule A?
Review Line 40 Entry vs. Standard Deduction Values on Page 2 of 1040
Page 4
SEB-Form 91
Review Line 40 Entry vs. Standard Deduction Values on Page 2 of 1040
Page 4
SEB-Form 91
SEB-Form 91
Schedule A Expenses
Page 5
When a 2106 Worksheet has
been completed you must
review it for total expenses
declared!
Schedule A Expenses
Page 5
When a 2106 Worksheet has
been completed you must
review it for total expenses
declared!
SEB-Form 91
Line 8 (a+b)= Total Expenses
2106 Worksheet
Page 15
Line 8 (a+b)= Total Expenses
2106 Worksheet
Page 15
SEB-Form 91
Income Analysis Form 91
Total Expenses (-) 15,355
Depreciation (+) 0
2. Form 2106-Employee Business Expenses
Income Analysis Form 91
Total Expenses (-) 15,355
Depreciation (+) 0
2. Form 2106-Employee Business Expenses
12,455(miles) x .22cents= $2,740 of depreciation
In 2011 the standard mileage deduction was 51 cents which
includes 22 cents of depreciation on the vehicle.
Paper expenses = Qualifying Income!
Page 16
2106 Worksheet for Mary’s W-2 Wage
SEB-Form 91
In 2011 the standard mileage deduction was 51 cents which
includes 22 cents of depreciation on the vehicle.
Paper expenses = Qualifying Income!
Page 16
2106 Worksheet for Mary’s W-2 Wage
SEB-Form 91
Depreciation Factor
SEB-Form 91
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Total Expenses (-) 15,355
Depreciation (+) 2,740
2. Form 2106-Employee Business Expenses
By offsetting the claimed unreimbursed expenses with the depreciation it
is now *$15,355- $2,740= $12,615
By reducing the annual income of $74,700 by the $12,615 will equal the
qualifying income.
$74,700- $12,615= $62,085 /12= $5,173 per month
*Some Investors require the Lender to establish a two year average and
reduced the Borrower’s income. If a two year average can not be
documented the annual expense will be used as a monthly liability.
Individual Tax Return (1040) 2011
1. W-2 Income from SE 74,700
$62,085
Income Analysis Form 91
Total Expenses (-) 15,355
Depreciation (+) 2,740
2. Form 2106-Employee Business Expenses
By offsetting the claimed unreimbursed expenses with the depreciation it
is now *$15,355- $2,740= $12,615
By reducing the annual income of $74,700 by the $12,615 will equal the
qualifying income.
$74,700- $12,615= $62,085 /12= $5,173 per month
*Some Investors require the Lender to establish a two year average and
reduced the Borrower’s income. If a two year average can not be
documented the annual expense will be used as a monthly liability.
Individual Tax Return (1040) 2011
1. W-2 Income from SE 74,700
$62,085
Depreciation Factor
Automobile Depreciation
If a borrower claims a “standard mileage” deduction, the business
miles driven should be multiplied by the depreciation factor for the
appropriate year, and the calculated amount added to the borrower’s
cash flow.
If a borrower claims an “actual depreciation expense” deduction, the
amount the borrower claimed should be added to the borrower’s cash
flow.
26 SEB-Form 91
Automobile Depreciation
If a borrower claims a “standard mileage” deduction, the business
miles driven should be multiplied by the depreciation factor for the
appropriate year, and the calculated amount added to the borrower’s
cash flow.
If a borrower claims an “actual depreciation expense” deduction, the
amount the borrower claimed should be added to the borrower’s cash
flow.
26 SEB-Form 91
2106 Expenses
Nonreimbursed Employee Expenses
When a borrower has nonreimbursed business expenses, such as classroom supplies,
uniforms, meals, gasoline, automobile insurance, and/or automobile taxes, the lender must
determine the borrower’s recurring monthly debt obligation for such expenses by developing a
24-month average of the expenses, using information from the borrower’s IRS Form 1040
including all schedules (Schedule A and IRS Form 2106) and net out any automobile
depreciation claimed on IRS Form 2106.
Consequently, when calculating the total debt-to-income ratio, the 24-month average for
nonreimbursed expenses should be subtracted from the borrower’s stable monthly income,
unless such expenses are automobile lease payments or automobile loan payments, in which
case they are to be considered part of the borrower’s recurring monthly debt obligations. If
there is not a 24-month history of such expenses, the lender should develop an annualized
monthly average for the expenses and add this calculated amount to the borrower’s monthly
debt obligations.
2012 Selling Guide
Part B, Origination Through Closing
Subpart B3, Underwriting Borrowers
Chapter B3-6, Liability Assessment
B3-6-05, Monthly Debt Obligations (05/24/2011)
Title: B3-6-05, Monthly Debt Obligations (05/24/2011) Copy To Clipboard Document ID: 900c5f08-5ce1-4919-9db6-4303b8658cf0 Copy To Clipboard Document Name:
003707958@partb_origthruclosing!b3_underwriteborrowers!b3_6_liabilityassess!b1_b0134 Copy To ClipboardClose
27 SEB-Form 91
Nonreimbursed Employee Expenses
When a borrower has nonreimbursed business expenses, such as classroom supplies,
uniforms, meals, gasoline, automobile insurance, and/or automobile taxes, the lender must
determine the borrower’s recurring monthly debt obligation for such expenses by developing a
24-month average of the expenses, using information from the borrower’s IRS Form 1040
including all schedules (Schedule A and IRS Form 2106) and net out any automobile
depreciation claimed on IRS Form 2106.
Consequently, when calculating the total debt-to-income ratio, the 24-month average for
nonreimbursed expenses should be subtracted from the borrower’s stable monthly income,
unless such expenses are automobile lease payments or automobile loan payments, in which
case they are to be considered part of the borrower’s recurring monthly debt obligations. If
there is not a 24-month history of such expenses, the lender should develop an annualized
monthly average for the expenses and add this calculated amount to the borrower’s monthly
debt obligations.
2012 Selling Guide
Part B, Origination Through Closing
Subpart B3, Underwriting Borrowers
Chapter B3-6, Liability Assessment
B3-6-05, Monthly Debt Obligations (05/24/2011)
Title: B3-6-05, Monthly Debt Obligations (05/24/2011) Copy To Clipboard Document ID: 900c5f08-5ce1-4919-9db6-4303b8658cf0 Copy To Clipboard Document Name:
003707958@partb_origthruclosing!b3_underwriteborrowers!b3_6_liabilityassess!b1_b0134 Copy To ClipboardClose
27 SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 0
Nonrecurring Other (Income) (-) 0
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship
2011
Income Analysis Form 91
Net Profit or Loss (+) 0
Nonrecurring Other (Income) (-) 0
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship
2011
SEB-Form 91
Schedule C Sole Proprietor
Page 7
Schedule C Sole Proprietor
Page 7
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 0
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 0
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Schedule C Sole Proprietor
Is “Other Income” Regular & Reoccurring?
Is a Gas or Fuel Credit?
Page 7
SEB-Form 91
Is “Other Income” Regular & Reoccurring?
Is a Gas or Fuel Credit?
Page 7
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Schedule C Sole Proprietor Part II
Page 7
SEB-Form 91
Page 7
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 0
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Schedule C Sole Proprietor Part II
Page 7
4562 or page 2 part IV of
Schedule C
Start with what is on line 13
first, if no ratio issue…move on!
SEB-Form 91
Page 7
4562 or page 2 part IV of
Schedule C
Start with what is on line 13
first, if no ratio issue…move on!
SEB-Form 91
Schedule C page 2
Page 8
Business miles from 44a (13,863) x .22 cents (depreciation factor)
= $3,049 in depreciation!
SEB-Form 91
Page 8
Business miles from 44a (13,863) x .22 cents (depreciation factor)
= $3,049 in depreciation!
SEB-Form 91
Form 4562 page 1
Page 19
SEB-Form 91
Page 19
SEB-Form 91
Form 4562 page 2
Page 20
Business miles from line 13 (13,863) x .22 cents (depreciation
factor) = $3,049 in depreciation!
SEB-Form 91
Page 20
Business miles from line 13 (13,863) x .22 cents (depreciation
factor) = $3,049 in depreciation!
SEB-Form 91
Schedule C Sole Proprietor Part II
Page 7
4562 or page 2
4,877 + $3,049 = $7,926 Total Depreciation
3,049
SEB-Form 91
Page 7
4562 or page 2
4,877 + $3,049 = $7,926 Total Depreciation
3,049
SEB-Form 91
Car & Truck Expense Worksheet
This worksheet will not be included in the “Client Copy” but can be retrieved from the tax preparer
Shows the Interest included in
the Total reported on Line #9 on
Sch. C.
42 SEB-Form 91
This worksheet will not be included in the “Client Copy” but can be retrieved from the tax preparer
Shows the Interest included in
the Total reported on Line #9 on
Sch. C.
42 SEB-Form 91
Borrower Debt
Fannie Mae 2012 Selling Guide B3-6-05, Monthly Debt Obligations (05/24/2011)
Business Debt in Borrower’s Name
When a self-employed borrower claims that a monthly obligation that appears on his or her personal credit report is being paid
by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds
and that this was considered in its cash flow analysis of the borrower’s business.
The account payment does not need to be considered as part of the borrower’s individual recurring monthly debt obligations if:
the account in question does not have a history of delinquency,
the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled
company checks), and
the lender’s cash flow analysis of the business took payment of the obligation into consideration.
The account payment does need to be considered as part of the borrower’s individual recurring monthly debt obligations in any
of the following situations:
If the business does not provide sufficient evidence that the obligation was paid out of company funds.
If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the
business does not reflect any business expense related to the obligation (such as an interest expense—and taxes and
insurance, if applicable—equal to or greater than the amount of interest that one would reasonably expect to see given the
amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not
been accounted for in the cash flow analysis.
If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should
adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account
in question.
43 SEB-Form 91
Fannie Mae 2012 Selling Guide B3-6-05, Monthly Debt Obligations (05/24/2011)
Business Debt in Borrower’s Name
When a self-employed borrower claims that a monthly obligation that appears on his or her personal credit report is being paid
by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds
and that this was considered in its cash flow analysis of the borrower’s business.
The account payment does not need to be considered as part of the borrower’s individual recurring monthly debt obligations if:
the account in question does not have a history of delinquency,
the business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of canceled
company checks), and
the lender’s cash flow analysis of the business took payment of the obligation into consideration.
The account payment does need to be considered as part of the borrower’s individual recurring monthly debt obligations in any
of the following situations:
If the business does not provide sufficient evidence that the obligation was paid out of company funds.
If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the
business does not reflect any business expense related to the obligation (such as an interest expense—and taxes and
insurance, if applicable—equal to or greater than the amount of interest that one would reasonably expect to see given the
amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not
been accounted for in the cash flow analysis.
If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should
adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account
in question.
43 SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 0
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Schedule C Sole Proprietor Part II
Page 7
SEB-Form 91
Page 7
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 0
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Page 8
Part V Casualty Losses & Amortization are added back to qualifying income!
Schedule C
SEB-Form 91
Part V Casualty Losses & Amortization are added back to qualifying income!
Schedule C
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 1,471
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 1,471
Business Use of Home (+) 0
3.Schedule C- Sole Proprietorship 2011
Schedule C Sole Proprietor Part II
Page 7
SEB-Form 91
Page 7
SEB-Form 91
8829 Business Use of Home
As the percentage of usage increases a more critical look at the collateral is required. Additional home owners
insurance coverage may also be required. If the transaction is a purchase for a new primary residence will the
Gross Sales of the business be impacted on the relocation of the business?
Page 17
SEB-Form 91
As the percentage of usage increases a more critical look at the collateral is required. Additional home owners
insurance coverage may also be required. If the transaction is a purchase for a new primary residence will the
Gross Sales of the business be impacted on the relocation of the business?
Page 17
SEB-Form 91
Page 17
Line #14 Casualty Losses, Interest and Real Estate Taxes may be added back to
qualifying income!
8829 Business Use of Home
SEB-Form 91
Line #14 Casualty Losses, Interest and Real Estate Taxes may be added back to
qualifying income!
8829 Business Use of Home
SEB-Form 91
Page 17
Line #41 Depreciation may be added back to qualifying income!
$2,825 + N/A= $2,825 your underwriter may only allow this amount to be added
back.
8829 Business Use of Home
SEB-Form 91
Line #41 Depreciation may be added back to qualifying income!
$2,825 + N/A= $2,825 your underwriter may only allow this amount to be added
back.
8829 Business Use of Home
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 1,471
Business Use of Home (+) 2,825
3.Schedule C- Sole Proprietorship 2011
$30,336
Income Analysis Form 91
Net Profit or Loss (+)24,040
Nonrecurring Other (Income) (-) 2,876
Depletion (+) 0
Depreciation (+) 7,926
Meals & Entertainment Exclusion (-) 3,050
Amortization/Casualty Loss (+) 1,471
Business Use of Home (+) 2,825
3.Schedule C- Sole Proprietorship 2011
$30,336
SEB-Form 91
Principal Payments Received (+) 0
Income Analysis Form 91
Recurring Capital Gains
(Loss) (+) 0
2011
4. Schedule D- Capital Gains & Losses
6. Form 6252- Installment Sale Income
5. Form 4797- Sales of Business Property
(+/-) 0
Line 6
Principal Payments Received (+) 0
Income Analysis Form 91
Recurring Capital Gains
(Loss) (+) 0
2011
4. Schedule D- Capital Gains & Losses
6. Form 6252- Installment Sale Income
5. Form 4797- Sales of Business Property
(+/-) 0
Line 6
Page 9
You have already negated the -$3,000 from the front page of the 1040.
Schedule D
SEB-Form 91
You have already negated the -$3,000 from the front page of the 1040.
Schedule D
SEB-Form 91
Page 10
$3,000 is the maximum allowable write-off if married filing a joint return. Next
year the remaining $56101 will carry over.
Does losing money on an investment and writing that loss off on paper impact
the borrower’s cash flow? Does it impact their ability to make a mortgage
payment?
Schedule D
SEB-Form 91
$3,000 is the maximum allowable write-off if married filing a joint return. Next
year the remaining $56101 will carry over.
Does losing money on an investment and writing that loss off on paper impact
the borrower’s cash flow? Does it impact their ability to make a mortgage
payment?
Schedule D
SEB-Form 91
SEB-Form 91
#6252 Installment Sale Schedule D
#4797 Sales Business Property
Taxable Income $_______
1040
Line 13 Capital Gain/Loss
Sch.D $_________
Line 14 OtherGain/Loss #4797
$_________
4797 may report onto
Sch.D or directly to 1040!
#6252 Installment Sale Schedule D
#4797 Sales Business Property
Taxable Income $_______
1040
Line 13 Capital Gain/Loss
Sch.D $_________
Line 14 OtherGain/Loss #4797
$_________
4797 may report onto
Sch.D or directly to 1040!
SEB-Form 91
Form 4797
No Example in Case Study
Form 4797
No Example in Case Study
SEB-Form 91
Form 6252
No Example in Case Study
Form 6252
No Example in Case Study
SEB-Form 91
Principal Payments Received (+) 0
Income Analysis Form 91
2011
4. Schedule D- Capital Gains & Losses
6. Form 6252- Installment Sale Income
5. Form 4797- Sales of Business Property
(+/-) 0
Principal Payments Received (+) 0
Income Analysis Form 91
2011
4. Schedule D- Capital Gains & Losses
6. Form 6252- Installment Sale Income
5. Form 4797- Sales of Business Property
(+/-) 0
SEB-Form 91
Income Analysis Form 91
Gross Rents & Royalties (+) 0
Total Expenses (-) 0
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Income Analysis Form 91
Gross Rents & Royalties (+) 0
Total Expenses (-) 0
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Schedule E- Rental
Page 12
SEB-Form 91
Page 12
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 0
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 0
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Schedule E- Rental
Page 12
SEB-Form 91
Page 12
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 0
Insurance, Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Schedule E- Rental
Page 12
SEB-Form 91
Page 12
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 11,168
Insurance ,Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 11,168
Insurance ,Mtg Interest, RE Taxes (+) 0
7.Schedule E- Supplemental Income & Loss
2011
Line7
Schedule E- Rental
Page 12
SEB-Form 91
Page 12
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 11,168
Insurance ,Mtg Interest, RE Taxes (+) 14,166
7.Schedule E- Supplemental Income & Loss
2011
= $16,480
= $16,480 /12= $1,373 -Mtg Payment $1,679
= $305 Net Rental Loss
Income Analysis Form 91
Gross Rents & Royalties (+) 18,600
Total Expenses (-) 27,454
Amort/Cas Loss/Nonrec Loss, Depr (+) 11,168
Insurance ,Mtg Interest, RE Taxes (+) 14,166
7.Schedule E- Supplemental Income & Loss
2011
= $16,480
= $16,480 /12= $1,373 -Mtg Payment $1,679
= $305 Net Rental Loss
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 0
Non-Tax Portion Coop & CCC Payments (+) 0
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Income Analysis Form 91
Net Profit or Loss (+) 0
Non-Tax Portion Coop & CCC Payments (+) 0
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Page 14
Schedule F
SEB-Form 91
Schedule F
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 0
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 0
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Page 14
3a $8,000 – 3b $4,000= $4,000 non- taxable income
$4,000 x 125% = $5,000 of Gross Income
Cash Flow Analysis 1084
SEB-Form 91
3a $8,000 – 3b $4,000= $4,000 non- taxable income
$4,000 x 125% = $5,000 of Gross Income
Cash Flow Analysis 1084
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 0
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Schedule F
Page 14
SEB-Form 91
Page 14
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Schedule F
4562
Page 14
SEB-Form 91
4562
Page 14
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
Schedule F
Page 14
SEB-Form 91
Page 14
SEB-Form 91
SEB-Form 91
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
$10,132
Income Analysis Form 91
Net Profit or Loss (+) 15,132
Non-Tax Portion Coop & CCC Payments (+) 5,000
Nonrecurring Other (Income) Loss (-) 10,000
Depreciation (+) 0
Amort/Casualty Loss/Non Loss (+) 0
Business Use of home (+) 0
2011
8. Schedule F- Profit or Loss from Farming
Line 8
$10,132
Page 3
1040 Income Section
Always subtract line 20b as this is the taxable amount of social security…it’s self employed income and
should be entered on your 1003 separately. (-) 20b
81 SEB-Form 91
1040 Income Section
Always subtract line 20b as this is the taxable amount of social security…it’s self employed income and
should be entered on your 1003 separately. (-) 20b
81 SEB-Form 91
Using Nontaxable Income
Fannie Mae 2012 Selling Guide B3-3.1-04, Using Nontaxable Income to Adjust the
Borrower’s Gross Income (04/01/2009)
Using Nontaxable Income to Adjust the Borrower’s Gross Income
The lender should give special consideration to regular sources of income that may be
nontaxable, such as child support payments, Social Security benefits, disability
retirement payments, workers’ compensation benefits, certain types of public
assistance payments, and food stamps.
The lender must verify that the particular source of income is nontaxable.
Documentation that can be used for this verification includes award letters, policy
agreements, account statements, or any other documents that address the nontaxable
status of the income.
If the income is verified to be nontaxable, and the income and its tax-exempt status are
likely to continue, the lender may develop an “adjusted gross income” for the borrower
by adding an amount equivalent to 25% of the nontaxable income to the borrower’s
income.
If the actual amount of federal and state taxes that would generally be paid by a wage
earner in a similar tax bracket is more than 25% of the borrower’s nontaxable income,
the lender may use that amount to develop the adjusted gross income, which should be
used in calculating the borrower’s qualifying ratio.
82 SEB-Form 91
Fannie Mae 2012 Selling Guide B3-3.1-04, Using Nontaxable Income to Adjust the
Borrower’s Gross Income (04/01/2009)
Using Nontaxable Income to Adjust the Borrower’s Gross Income
The lender should give special consideration to regular sources of income that may be
nontaxable, such as child support payments, Social Security benefits, disability
retirement payments, workers’ compensation benefits, certain types of public
assistance payments, and food stamps.
The lender must verify that the particular source of income is nontaxable.
Documentation that can be used for this verification includes award letters, policy
agreements, account statements, or any other documents that address the nontaxable
status of the income.
If the income is verified to be nontaxable, and the income and its tax-exempt status are
likely to continue, the lender may develop an “adjusted gross income” for the borrower
by adding an amount equivalent to 25% of the nontaxable income to the borrower’s
income.
If the actual amount of federal and state taxes that would generally be paid by a wage
earner in a similar tax bracket is more than 25% of the borrower’s nontaxable income,
the lender may use that amount to develop the adjusted gross income, which should be
used in calculating the borrower’s qualifying ratio.
82 SEB-Form 91
Page 3
1040 Income Section
Like all non-SEB income if you document the income source is regular & recurring with a probable
future it may be added to the income screen.
In this example the applicant has received $8,891 in benefits and $7,557 of it was taxable as indicated in
(20b) this indicates that only the difference of 20a and 20b is tax free.
$8,891
-$7,557
=$1,334 tax exempt
83
$7,557
=$1,334 x 125%= $1,667
$9,224 total income
SEB-Form 91
1040 Income Section
Like all non-SEB income if you document the income source is regular & recurring with a probable
future it may be added to the income screen.
In this example the applicant has received $8,891 in benefits and $7,557 of it was taxable as indicated in
(20b) this indicates that only the difference of 20a and 20b is tax free.
$8,891
-$7,557
=$1,334 tax exempt
83
$7,557
=$1,334 x 125%= $1,667
$9,224 total income
SEB-Form 91
84
Freddie Mac Verbal Verification of
Employment
–As per Freddie Mac Bulletin 2009-18
sellers are required to verbally verify
employment for certain borrowers
using Form 90 or a similar form
–Be sure if using a different form, it
captures the required information as
per the Freddie Mac Seller
–As per Freddie Mac Bulletin 09-27
sellers are required to obtain the
Verbal VOE not more than 10
Business days prior to the Note Date
rather than 10 calendar days
http://freddiemac.com/learn/qr.html
Freddie Mac Form 90 Verbal Verification of
Employment
SEB-
Form 91
SEB-Form 91
Freddie Mac Verbal Verification of
Employment
–As per Freddie Mac Bulletin 2009-18
sellers are required to verbally verify
employment for certain borrowers
using Form 90 or a similar form
–Be sure if using a different form, it
captures the required information as
per the Freddie Mac Seller
–As per Freddie Mac Bulletin 09-27
sellers are required to obtain the
Verbal VOE not more than 10
Business days prior to the Note Date
rather than 10 calendar days
http://freddiemac.com/learn/qr.html
Freddie Mac Form 90 Verbal Verification of
Employment
SEB-
Form 91
SEB-Form 91
Legal Disclaimer
Genworth Mortgage Insurance is happy to provide you with these training
materials. While we strive for accuracy, we also know that any discussion of laws
and their application to particular facts is subject to individual interpretation,
change, and other uncertainties. Our training is not intended as legal advice, and
is not a substitute for advice of counsel. You should always check with your own
legal advisors for interpretations of legal and compliance principles applicable to
your business.
GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO
EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND
WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.
85 ©2012 Genworth Financial, Inc. All rights reserved.
Genworth Mortgage Insurance is happy to provide you with these training
materials. While we strive for accuracy, we also know that any discussion of laws
and their application to particular facts is subject to individual interpretation,
change, and other uncertainties. Our training is not intended as legal advice, and
is not a substitute for advice of counsel. You should always check with your own
legal advisors for interpretations of legal and compliance principles applicable to
your business.
GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. IN NO
EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT,
INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES OF ANY KIND
WHATSOEVER WITH RESPECT TO THE TRAINING AND THE MATERIALS.
85 ©2012 Genworth Financial, Inc. All rights reserved.
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