Article Guide
When navigating the complexities of self-employment income, the Fannie Mae Income Worksheet form, or Form 1084, serves as an essential tool for financial analysis. This worksheet is designed to provide a comprehensive assessment of income available for loan qualifying purposes, reflecting both the stability and continuity of a borrower's earnings. Included within the worksheet are various sources of income, such as wages, interest, and dividends, each categorized by tax documents like IRS Form 1040, Schedule C, and Schedule E. By using this form, borrowers can detail their net profits or losses from sole proprietorships, partnerships, and S corporations, enabling lenders to evaluate the overall financial health of the business. Specific adjustments, like depreciation or non-deductible expenses, further refine the cash flow analysis, ensuring that the income reported offers an accurate portrayal of the borrower's economic situation. Moreover, the worksheet addresses supplemental income and even considers farming profits, ensuring a wide-ranging overview of potential earnings. As borrowers prepare to apply for loans, understanding this tool proves critical for accurately documenting their financial landscape.
Form Sample
Cash Flow Analysis (Form 1084)
Borrower Name: ___________________
Business Name (optional): _________________________________
This worksheet may be used to prepare a written evaluation of the analysis of income related to
IRS Form 1040 – Individual Income Tax Return |
Year_________ |
Year_________ |
||
1. |
(+)___________ |
(+)___________ |
||
2. |
Schedule B – Interest and Ordinary Dividends |
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|
|
|
a. |
Interest Income from |
(+)___________ |
(+)___________ |
|
b. |
Dividends from |
(+)___________ |
(+)___________ |
3.Schedule C – Profit or Loss from Business: Sole Proprietorship
a. Net Profit or (Loss) |
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b. Nonrecurring Other (Income) Loss/Expenses |
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c. |
Depletion |
(+)___________ |
(+)___________ |
d. |
Depreciation |
(+)___________ |
(+)___________ |
e. |
|||
f. |
Business Use of Home |
(+)___________ |
(+)___________ |
g. |
Amortization/Casualty Loss |
(+)___________ |
(+)___________ |
4.Schedule D – Capital Gains and Losses
a. Recurring Capital Gains |
(+)___________ |
(+)___________ |
5.Schedule E – Supplemental Income and Loss
Note: A lender may use Fannie Mae Rental Income Worksheets (Form 1037 or Form 1038) to calculate individual rental income (loss) reported on Schedule E.
a. |
Royalties Received |
(+)___________ |
(+)___________ |
b. |
Total Expenses |
||
c. |
Depletion |
(+)___________ |
(+)___________ |
6.Schedule F – Profit or Loss from Farming
a. Net Farm Profit or (Loss) |
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b. |
(+ )__________ |
(+) ___________ |
|
c. Nonrecurring Other (Income) Loss |
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d. |
Depreciation |
(+) __________ |
(+) ___________ |
e. |
Amortization/Casualty Loss/Depletion |
(+) __________ |
(+) ___________ |
f. |
Business Use of Home |
(+) __________ |
(+) ___________ |
Note: IRS Form 4797 (Sales of Business Property) is not included on this worksheet due to its infrequent use. If applicable, a lender may include analysis of the sale and related recurring capital gains.
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 1 of 8 |
Partnership or S Corporation
A
the income was actually distributed to the borrower, or
the business has adequate liquidity to support the withdrawal of earnings. If the Schedule
Note: See the Instructions for additional guidance on documenting access to income and business liquidity.
IRS Form 1065 - Partnership |
Income |
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7. Schedule |
– Partner’s Share of Income |
Year__________ |
Year__________ |
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a. |
Ordinary Income (Loss) |
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b. Net Rental Real Estate; Other Net Income (Loss) |
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c. |
Guaranteed Payments to Partner |
(+)____________ |
(+) ___________ |
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8.Form 1065 - Adjustments to Business Cash Flow
a. Ordinary (Income) Loss from Other Partnerships |
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b. Nonrecurring Other (Income) Loss |
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c. |
Depreciation |
(+) __________ |
(+) ___________ |
d. |
Depletion |
(+) __________ |
(+) ___________ |
e. |
Amortization/Casualty Loss |
(+) __________ |
(+) ___________ |
f. Mortgages or Notes Payable in Less than 1 Year |
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g. |
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h. |
Subtotal |
____________ |
_____________ |
i. |
Total Form 1065 |
____________ |
_____________ |
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(Subtotal multiplied by % of ownership) |
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IRS Form 1120S – S Corporation Earnings |
Year__________ |
Year__________ |
9.Schedule
a. |
Ordinary Income (Loss) |
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b. |
Net Rental Real Estate; Other Net Rental Income (Loss) |
||
10.Form 1120S - Adjustments to Business Cash Flow
a. Nonrecurring Other (Income) Loss |
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b. |
Depreciation |
(+)__________ |
(+)___________ |
c. |
Depletion |
(+)__________ |
(+)___________ |
d. |
Amortization/Casualty Loss |
(+)__________ |
(+)___________ |
e. Mortgages or Notes Payable in Less than 1 Year |
|||
f. |
|||
g. |
Subtotal |
____________ |
_____________ |
h. |
Total Form 1120S |
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|
(Subtotal multiplied by % of ownership) |
____________ |
_____________ |
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 2 of 8 |
IRS Form 1120 – Regular Corporation
Corporation earnings may be used when the borrower(s) own 100% of the corporation.
11. Form 1120 – Regular Corporation |
Year_________ |
Year_________ |
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|
|
||
a. |
Taxable Income |
____________ |
_____________ |
b. |
Total Tax |
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c. |
Nonrecurring (Gains) Losses |
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d. Nonrecurring Other (Income) Loss |
|||
e. |
Depreciation |
(+)__________ |
(+)___________ |
f. |
Depletion |
(+)__________ |
(+)___________ |
g. |
Amortization/Casualty Loss |
(+)__________ |
(+)___________ |
h. Net Operating Loss and Special Deductions |
(+)__________ |
(+)___________ |
|
i. Mortgages or Notes Payable in Less than 1 Year |
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j. |
|||
k. |
Subtotal |
____________ |
_____________ |
l. Less: Dividends Paid to Borrower |
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m. Total Form 1120 |
____________ |
_____________ |
|
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 3 of 8 |
CASH FLOW ANALYSIS (Fannie Mae Form 1084)
Instructions
Guidance for documenting access to income and business liquidity
If the Schedule
If the Schedule
IRS Form 1040 – Individual Income Tax Return
1.
2.Schedule B – Interest and Ordinary Dividends
Line 2a - Interest Income from
Line 2b - Dividends from
3.Schedule C – Profit or Loss from Business: Sole Proprietorship
Line 3a - Net Profit or Loss: Record the net profit or (loss) reported on Schedule C.
Line 3b - Nonrecurring Other (Income) Loss/ Expense: Other income reported on Schedule C represents income that is not directly related to business receipts. Deduct other income unless the income is determined to be recurring. If the income is determined to be recurring, no adjustment is required. Other loss may be added back when it is determined that the loss will not continue.
Line 3c - Depletion: Add back the amount of the depletion deduction reported on Schedule C.
Line 3d - Depreciation: Add back the amount of the depreciation deduction reported on Schedule C. Vehicle depreciation included as part of the standard mileage deduction may be added back by multiplying the business miles driven by the depreciation factor for the respective year.
Line 3e -
Line 3f - Business Use of Home: Add back the expenses deducted for the business use of home.
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 4 of 8 |
Line 3g - Amortization/Casualty Loss: Add back the expense deducted for amortization along with the expense associated with
4.Schedule D – Capital Gains and Losses
Line 4a - Recurring Capital Gains: Identify the amount of recurring capital gains. Schedule D may report business capital gains passed through to the borrower on Schedule
Note: Business capital losses identified on Schedule D do not have to be considered when calculating income or liabilities, even if the losses are recurring.
5.Schedule E – Supplemental Income and Loss
Note: Use Fannie Mae Rental Income Worksheets (Form 1037 or Form 1038) to evaluate individual rental income (loss) reported on Schedule E. Refer to Selling Guide,
Partnerships and S corporation income (loss) reported on Schedule E is addressed below.
Line 5a - Royalties Received: Include royalty income which meets eligibility standards.
Line 5b - Total Expenses: Deduct the expenses related to royalty income used in qualifying the borrower.
Line 5c - Depletion: Add back the amount of the depletion deduction related to royalty income used in qualifying the borrower.
6.Schedule F – Profit or Loss from Farming
Line 6a - Net Farm Profit or (Loss): Record the net farm profit or (loss) reported on Schedule F.
Line 6b -
Line 6c - Nonrecurring Other (Income) Loss: Other income reported on Schedule F represents income received by a farmer that was not obtained through farm operations. Deduct other income unless the income is determined to be recurring. If the income is determined to be recurring, no adjustment is required. Other loss may be added back when it is determined that the loss will not continue.
Line 6d - Depreciation: Add back the amount of the depreciation deduction reported on Schedule F.
Line 6e - Amortization/Casualty Loss/Depletion: Add back the expense deducted for amortization/depletion along with the expense associated with
Line 6f - Business Use of Home: Add back the expenses deducted for the business use of home.
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 5 of 8 |
Partnership or S Corporation
IRS Form 1065 – Partnership Income
7.Schedule
Line 7a - Ordinary Income (Loss): Record the amount of ordinary income (loss) reported to the borrower in Box 1 of Schedule
Line 7b - Net Rental Real Estate; Other Net Income (Loss): Record the amount of net rental real estate; other net income (loss) reported to the borrower in Box 2 and/or 3 of Schedule
Line 7c - Guaranteed Payments to Partner: Add guaranteed payments to partner when the borrower has a two- year history of receipt.
8.Adjustments to Business Cash Flow – Form 1065
When business tax returns are obtained by the lender, the following adjustments to business cash flow should be made.
Line 8a - Ordinary income (loss) from other Partnerships: In order to consider ordinary income from other partnerships, the lender must obtain additional documentation to confirm the income passed through from the other partnership to the borrower’s business meets partnership income eligibility standards. Deduct ordinary income passed through to the borrower’s business from other partnerships unless this additional action is taken. Losses passed through to the borrower’s business may be added back when the lender determines
Line 8b - Nonrecurring Other (Income) Loss: Other income reported on Form 1065 generally represents income that is not directly related to business receipts. Deduct other income unless the income is determined to be recurring. If the income is determined to be recurring, no adjustment is required. Other loss may be added back when it is determined that the loss will not continue.
Line 8c - Depreciation: Add back the amount of the depreciation deduction reported on Form 1065 and/or on Form 8825.
Line 8d - Depletion: Add back the amount of the depletion deduction reported on Form 1065.
Line 8e - Amortization/Casualty Loss: Add back the expense deducted for amortization/depletion along with the expense associated with
Line 8f - Mortgage or Notes Payable in Less than 1 Year: Subtract the amount of mortgage or note obligations payable in less than one year, as reported in Schedule L of Form 1120S, end of year column. This deduction is not required for lines of credit or if there is evidence that these obligations roll over regularly and/or the business has sufficient liquid assets to cover them.
Line 8g -
Line 8h - Subtotal: Total lines 8a – 8g.
Line 8i - Form 1065 Total: To arrive at the borrower’s proportionate share of adjustments to business cash flow, multiply the subtotal (line 8h) by the borrower’s percentage of ownership (the borrower’s ending percentage of capital ownership as reported on the Schedule
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 6 of 8 |
IRS Form 1120S – S Corporation Earnings
9.Schedule
Line 9a - Ordinary Income (Loss): Record the amount of ordinary income (loss) reported to the borrower in Box 1 of Schedule
Line 9b - Net Rental Real Estate; Other Net Income (Loss): Record the amount of net rental real estate; other net income (loss) reported to the borrower in Box 2 and/or 3 of Schedule
10.Adjustments to Business Cash Flow – Form 1120S
When business tax returns are obtained by the lender, the following adjustments to business cash flow should be made.
Line 10a - Nonrecurring Other (Income) Loss: Other income reported on Form 1120S generally represents income that is not directly related to business receipts. Deduct other income unless the income is determined to be recurring. If the income is determined to be recurring, no adjustment is required. Other loss may be added back when it is determined that the loss will not continue.
Line 10b - Depreciation: Add back the amount of the depreciation deduction reported on Form 1120S and/or or Form 8825.
Line 10c - Depletion: Add back the amount of the depletion deduction reported on Form 1120S.
Line 10d - Amortization/Casualty Loss: Add back the expense deducted for amortization/depletion along with the expense associated with
Line 10e - Mortgage or Notes Payable in Less than 1 Year: Subtract the amount of mortgage or note obligations payable in less than one year, as reported in Schedule L of Form 1120S, end of year column. This deduction is not required for lines of credit or if there is evidence that these obligations rollover regularly and/or the business has sufficient liquid assets to cover them.
Line 10f -
Line 10g - Subtotal: Total lines 10a – 10f.
Line 10h - Form 1120S Total: To arrive at the borrower’s proportionate share of adjustments to business cash flow, multiply the subtotal (line 10g) by the borrower’s percentage of stock for tax year reported on the Schedule
IRS Form 1120 – Regular Corporation
11.Regular Corporation – Form 1120
When business tax returns are obtained by the lender, the following adjustments to business cash flow should be made.
Line 11a - Taxable Income: Record the taxable income reported by the business on the first page of Form 1120.
Line 11b - Total Tax: Deduct the corporation‘s tax liability identified on page 1 of Form 1120.
Line 11c - Nonrecurring Other (Gains) Losses: Deduct gains unless it is determined that the gains are likely to continue. Losses may be added back when it can be determined that the loss is a
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 7 of 8 |
Line 11d - Nonrecurring Other (Income) Loss: Other income reported on Form 1120 generally represents income that is not directly related to business receipts. Deduct other income unless the income is determined to be recurring. If the income is determined to be recurring, no adjustment is required. Other loss may be added back when it is determined that the loss will not continue.
Line 11e - Depreciation: Add back the amount of the depreciation deduction reported on Form 1120.
Line 11f - Depletion: Add back the amount of the depletion deduction reported on Form 1120S.
Line 11g - Amortization/Casualty Loss: Add back the expense deducted for amortization/depletion along with the expense associated with
Line 11h - Net Operating Loss and Special Deductions: Add back the full amount of the deduction related to net operating loss and/or special deductions.
Line 11i - Mortgage or Notes Payable in Less than 1 Year: Subtract the amount of mortgage or note obligations payable in less than one year, as reported in Schedule L of Form 1120S, end of year column. This deduction is not required for lines of credit or if there is evidence that these obligations roll over regularly and/or the business has sufficient liquid assets to cover them.
Line 11j -
Line 11k - Subtotal: Total lines 11a – 11j.
Line 11l - Dividends Paid to Borrower: Dividends paid to stockholders are reported on Schedule
Line 11m - Form 1120 Total: Subtract 11l from 11k to determine the adjustments to business tax flow that may be considered when the borrower(s) own 100% of the corporation and the business has adequate liquidity to support the withdrawal of earnings.
© 2019 Fannie Mae. Trademarks of Fannie Mae. |
Form 1084 June 2019 |
Page 8 of 8 |
Document Specifications
| Fact Name | Detail |
|---|---|
| Purpose | This form helps evaluate income for self-employed borrowers using a cash flow analysis. |
| Related IRS Form | It is associated with IRS Form 1040 for individual income tax returns. |
| Income Components | The worksheet calculates various income sources from self-employment, including W-2 income and business profits. |
| Business Verification | Self-employed income must be verified by the lender, typically using documentation like Schedule K-1. |
| Governing Laws | The use of this form is regulated under Federal Housing Finance Agency guidelines. |
| Schedule Usage | Borrowers may use additional schedules like C, D, E, and F to report profits or losses from different business activities. |
| Adjustments Allowed | Certain deductions, such as depreciation and nonrecurring expenses, can be added back to the income calculation. |
| Rental Income | For rental income, Fannie Mae has designated forms (1037 or 1038) to calculate losses and gains separately. |
| Form Version | The latest version of this worksheet is dated June 2019 and is marked with © 2019 Fannie Mae. |
Steps to Filling Out Fannie Mae Income Worksheet
Completing the Fannie Mae Income Worksheet is an important step in the process of evaluating income for self-employed borrowers. This worksheet helps present a comprehensive view of the borrower’s income sources and financial stability. By following these steps carefully, the borrower can ensure that all necessary information is accurately recorded for loan qualifying purposes.
- Begin by entering the borrower's name and, if applicable, the business name at the top of the form.
- Reference IRS Form 1040 for the relevant tax years. Write the years for which you will be reporting income.
- For W-2 Income from Self-Employment, fill in the income amounts pertaining to each year.
- Under Schedule B, list the Interest Income and Dividends received from self-employment for both tax years.
- In Schedule C, report the Net Profit or Loss for the sole proprietorship. Include additional income or expenses as appropriate, such as Depletion and Depreciation, making sure to deduct non-deductible travel expenses.
- Record any Recurring Capital Gains under Schedule D for both years, ensuring they are not from one-time transactions.
- If applicable, gather information from Schedule E for Supplemental Income and Loss, specifically for Royalties Received and total expenses.
- For Schedule F, provide the Net Farm Profit or Loss, including any non-taxable portions of payments received related to farming.
- If involved in partnerships or S Corporations, record the necessary income using Schedule K-1, ensuring proper adjustments are made to reflect business cash flow.
- Complete the sections for each corporation type (Form 1120S and Form 1120) if the borrower owns relevant shares, detailing income and deductions adequately.
As you finish completing the form, double-check your entries for accuracy. This attention to detail will provide lenders with a clear understanding of income stability and cash flow, essential for making informed decisions regarding loan applications.
More About Fannie Mae Income Worksheet
What is the purpose of the Fannie Mae Income Worksheet Form?
The Fannie Mae Income Worksheet Form, also known as Form 1084, is used to evaluate and document income related to self-employment for loan qualification purposes. The form helps determine the borrower's stable and continuous income. This evaluation is critical for lenders to assess whether the borrower qualifies for a loan based on their income sources.
Which income sources are documented on this form?
The form covers various income sources, including W-2 income from self-employment, interest and ordinary dividends, profits or losses from a business, rental income, royalties, and farm profits. Specifically, it includes details from IRS forms like 1040, 1065, 1120S, and 1120. Borrowers must provide accurate figures from these documents to ensure a comprehensive assessment of income.
How do I report income from partnerships or S corporations?
If a borrower is involved in a partnership or S corporation, it is essential to include their share of earnings reported on Schedule K-1. However, this income can be considered valid only if documentation proves that the income has been or will be distributed to the borrower. Additionally, business liquidity must be verified to support the withdrawal of these earnings. If the income has a stable history of distributions, no further documentation is necessary.
What adjustments can be made for self-employed income on the worksheet?
The worksheet allows borrowers to make specific adjustments to their reported income from self-employment. For instance, they can add back nonrecurring losses, depreciation, and depletion expenses. Additionally, expenses that are not deductible for tax purposes, such as non-deductible travel and meals, can be subtracted from the borrower’s reported income. This flexibility helps provide a clearer picture of the true cash flow available for loan qualifying.
Common mistakes
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Incorrect Reporting of Income Sources: Borrowers often misclassify their income sources. For example, listing income from a partnership without properly indicating that it's from a Schedule K-1 can lead to significant issues.
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Neglecting to Verify Business Liquidity: If a borrower omits confirming business liquidity to support income withdrawals, this could result in disqualification. Lenders require proof that income can be reliably accessed.
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Failing to Identify Nonrecurring Income: Borrowers sometimes include one-time income events, like bonuses, without realizing that lenders need a consistent income history. This can falsely inflate their qualifying income.
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Ignoring Expenses: It's crucial to account for all non-deductible expenses, such as non-deducted travel and meals. Borrowers may overlook these deductions, skewing their cash flow analysis.
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Improperly Accounting for Depreciation: Depreciation should be added back when calculating income, but some borrowers mistakenly deduct it instead. This miscalculation can adversely affect income verification.
Documents used along the form
The Fannie Mae Income Worksheet is commonly accompanied by several specific forms and documents that assist in evaluating a borrower’s income, particularly for those who are self-employed. Understanding these supplemental documents can provide clarity and accuracy in the income verification process.
- IRS Form 1040 – This is the standard individual income tax return used by U.S. taxpayers. It provides a comprehensive overview of a borrower’s income, including wages, business earnings, and various interest or dividend earnings. For self-employed individuals, particular sections such as Schedule C and Schedules E or F are particularly relevant.
- Schedule K-1 – Issued to partners in partnerships or shareholders in S-corporations, this document details each owner's share of the entity’s income, deductions, and credits. It serves as proof of distributed earnings that can be considered for income verification when applying for a loan.
- Schedule C – This document, specific to sole proprietorships, details profit or loss from a business. It helps lenders assess the viability and profitability of self-employment income for borrowers, providing insights into recurring revenue and related expenses.
- IRS Form 1120S – Used by S corporations, this form reports the income, deductions, and available distributions to shareholders. It is critical for evaluating the income attributable to shareholders of an S corporation, ensuring that lenders assess the correct amount of income for loan qualification.
In summary, these forms play a vital role in the income verification process for borrowers, particularly those who are self-employed. Each document presents essential financial information that helps lenders make informed decisions about loan eligibility.
Similar forms
The IRS Form 1040, also known as the Individual Income Tax Return, serves as a fundamental document for individuals to report their annual income. Similar to the Fannie Mae Income Worksheet, it provides a comprehensive overview of a borrower's income, including wages, dividends, and interest. The form breaks down various income sources, facilitating a structured analysis of the income's stability and continuity for lenders. For borrowers who are self-employed, it includes essential information such as net profit or loss, which can be compared against the income worksheet to evaluate qualifying income effectively.
Another document that closely relates to the Fannie Mae Income Worksheet is the IRS Schedule C, which focuses specifically on Profit or Loss from Business for sole proprietorships. Like the Income Worksheet, Schedule C helps assess the financial health of self-employed individuals. Both documents allow a thorough review of revenues, expenses, and deductions, such as depreciation and non-deductible travel expenses. This comparison aids in determining the borrower’s actual cash flow and can help lenders gauge whether the income is stable enough for loan qualification.
IRS Form 1065 pertains to Partnership Income and also provides useful insights regarding a borrower’s income that may be derived from partnerships. This form is similar to the Income Worksheet as it includes partnerships' earnings detailed through the Schedule K-1. Borrowers who receive income from partnerships must report this on Form 1065. By analyzing both documents together, lenders can verify the distribution of earnings and assess the borrower's ability to access that income, ensuring a fuller understanding of the borrower's financial status.
Similarly, the IRS Form 1120S, which is used for S Corporations, offers important financial details about a corporation's earnings. Both this form and the Fannie Mae Income Worksheet allow for the analysis of income that is passed through to shareholders via Schedule K-1. For lenders, correlating data from these two documents helps in verifying not just income earned, but also the consistent and stable nature of that income, hence supporting loan qualification efforts for self-employed borrowers.
The Schedule E form provides a report of Supplemental Income and Loss, which further aligns with the principles outlined in the Fannie Mae Income Worksheet. Schedule E captures various rental incomes and royalties that can supplement a borrower’s qualifying income. By reviewing both documents, lenders gain a comprehensive perspective on the varied income sources that a borrower may have, assisting in determining the overall eligibility for a loan based on a consistent income stream.
For those in farming, Schedule F offers insights into the Profit or Loss from Farming, paralleling the analysis found in the Fannie Mae Income Worksheet. This document includes net farm profits and related deductions. When combined with the income worksheet, it provides a complete picture of how agricultural income contributes to the overall financial picture of a borrower, ensuring a cautious and informed approach to income verification.
The Cash Flow Analysis form, including the associated guidelines, mirrors elements of the Fannie Mae Income Worksheet closely. It allows for detailed documentation of income access and business liquidity, akin to how Fannie Mae assesses self-employment income for mortgage eligibility. Both documents address the need for a stable history of income and the ability to substantiate cash flow, protecting lenders from potential risks while providing borrowers with a clear path to qualifying for loans.
Finally, the IRS Schedule D, covering Capital Gains and Losses, is another document that can enhance the review of a borrower's financial activities. If capital gains are relevant to a borrower’s income, both this schedule and the Fannie Mae Income Worksheet can provide deeper insights into such income sources. By cross-referencing capital gains identified in Schedule D with income reported in the worksheet, lenders can ensure a thorough understanding while assessing the borrower’s financial resilience and their ability to take on new debt.
Dos and Don'ts
When filling out the Fannie Mae Income Worksheet, certain practices can enhance accuracy and ensure compliance with requirements. Here is a list of things you should and shouldn't do:
- Do: Ensure all fields are filled out completely and accurately. Errors can lead to delays in processing.
- Don't: Skip any sections. Each part of the worksheet is important for a comprehensive income analysis.
- Do: Use the correct tax forms and schedules when reporting income. Make sure the information aligns with the IRS's guidelines.
- Don't: Provide unverifiable income. All reported income should be supported by appropriate documentation.
- Do: Review all calculations thoroughly. Simple arithmetic mistakes can lead to significant discrepancies.
- Don't: Assume income from one year is representative of future income. Focus on stable and consistent income sources.
- Do: Communicate with your lender for clarification on any part of the worksheet you do not understand.
- Don't: Submit incomplete or unclear documents. This may hinder the evaluation process.
- Do: Keep copies of all submitted forms for your records. This may assist in future evaluations or queries.
Misconceptions
Below are common misconceptions about the Fannie Mae Income Worksheet form, including clarifications to help ensure understanding:
- This form only applies to salaried employees. Many believe that the form is relevant solely to traditional salaried individuals. In reality, it is designed for self-employed individuals or those with non-traditional income sources.
- The worksheet is only needed for tax purposes. While it uses tax-related data, its primary purpose is to evaluate income for loan qualification. This assessment helps lenders determine the borrower’s financial stability.
- Completing the form guarantees loan approval. Some borrowers think that finishing the worksheet ensures they will get a loan. Approval depends on various factors, including credit history, debt-to-income ratio, and overall financial health.
- All income must be reported, regardless of its nature. Many underestimate the importance of distinguishing between stable and nonrecurring income. The form focuses on stable, continuous income to ensure reliable loan repayment capabilities.
- The form is complicated and requires professional help. While it may seem intricate, most borrowers can fill it out with a good understanding of their income sources. Resources and instructions are available to guide individuals through the process.
- The Fannie Mae Income Worksheet can replace other tax documents. It’s a common belief that this form alone suffices for all income verification. On the contrary, it should be used alongside relevant tax documents, such as IRS Forms 1040, 1065, and 1120S, to provide a complete financial picture.
Key takeaways
When filling out and using the Fannie Mae Income Worksheet (Form 1084), it is important to keep various factors in mind. Below are key takeaways that can guide you through the process.
- Purpose of the Form: The form is designed to assess income levels for self-employed borrowers to determine eligibility for loans.
- Documentation is Key: Accurate documentation is essential. Ensure all income sources are properly recorded and verified, such as W-2 income and any applicable schedules from tax returns.
- Recurrence Matters: Distinguish between recurring and nonrecurring income. Only stable and continuous income should be counted for loan eligibility.
- Adjustments Allowed: Certain deductions, like depreciation or nonrecurring losses, can be added back to the income reported, providing a clearer picture of cash flow.
- Consideration of Business Income: For income from partnerships or S Corporations, documentation like Schedule K-1 must confirm the borrower's share and distribution of income.
- Rental Income Worksheets: Utilize Fannie Mae Rental Income Worksheets (Form 1037 or Form 1038) for evaluating rental income reported under Schedule E.
- Home Office Deductions: If applicable, include business-use-of-home deductions to reflect accurate income levels and strengthen your cash flow position.
- Stable Income History: A documented history of consistent income withdrawals from business accounts is important. If income distributions do not demonstrate stability, lenders may require proof of business liquidity.
These takeaways emphasize the significance of meticulous documentation and the stability of income. By understanding these key points, borrowers can navigate the Fannie Mae Income Worksheet more effectively.