Hi Thomasina,
(From a lender's perspective) My team and I work with a lot of self-employed borrowers, and are very familiar with analyzing tax returns. You will need to be in business at least two years as 1099, and a two year history of your prior earning is required - so two years most recent tax returns. This is required to demonstrate the likelihood the income will continue to be received. When analyzing the self-employed income, we must determine the amount of income that can be relied on by you, the Borrower, in qualifying for your personal mortgage obligation. We review business income distributions that have been made or could be made to you, while maintaining the viability of the underlying business. We also assess the stability of business income and the ability of the business to continue to generate sufficient income to enable you to meet your financial obligations. We will want to see a YTD P&L to show you are pacing on track from prior year, and will be looking at your net profit, not gross profit on those returns for the entire year. So, if you have written off too many expenses, it can hurt you from qualifying. It is okay if the income fluctuates month by month as we will take the average, but we will be looking for declining income year over year, so if the most recent year has a major decline - it could indicate a failing business and it could be hard to get approved, unless there is a valid reason behind the decline.
I hope this helps! Feel free to reach out directly with any additional questions.
