Self-Employment Stability

• Self-employment income used for DTI must be reasonable for the profession, verified stable, and likely to continue
• Most recent consecutive 2 full years in the same business are required
• 1099 income filed as Schedule C or E is eligible when it is in the same line of work and meets the same 2-year continuity requirement
• Business name on the initial 1003 must match the business bank account holder name

Acceptable Variance Levels

• For 12-month bank statement analysis, declines greater than 5% up to 10% year over year must be explained
• If the decline exceeds 10% year over year, the account is ineligible for use in the income calculation

Personal Bank Statements

• 24 or 12 months of personal statements plus 2 months of business bank statements
• If updated statements are provided, income must be recalculated
• Qualifying income is based on total eligible deposits divided by the number of statements
• Business statements must reflect business activity and transfers into the personal account
• Evidence within 30 days of note date that the business is active and operating with a minimum 2-year history

Business or Co-Mingled Bank Statements

• 24 or 12 months of business bank statements
• Income determined by one of the following: 50% fixed expense ratio, CPA/EA expense ratio with minimum 10%, or CPA/EA prepared profit and loss statement
• If updated statements are provided, income must be recalculated
• Business must be active and operating within 30 days of note date with minimum 2-year operating history

Asset Utilization

• Cannot be used as supplemental income
• Assets must be seasoned for at least 3 months
• Monthly qualifying income = net qualified assets divided by 84 months
• Ineligible assets include business assets, unseasoned foreign assets, unseasoned real estate sale proceeds, privately traded or restricted/non-vested stock, and assets already counted in another income analysis

IRS Form 1099

• 2 years of 1099s only, filed as Schedule C or E
• Fixed expense ratio of 10%
• YTD documentation required to support continued receipt of income from the same source
• Refer to the Flex Supreme Alt Doc Bank Statement Income Documentation section in the guidelines for full details

Credit Score

• The lowest middle score of all borrowers is used to qualify
• Each borrower must have a minimum of 2 credit scores
• For borrowers with 2 scores, use the lower score
• Non-traditional credit reports and non-tri-merge reports are not eligible

DTI / Residual

• Maximum DTI: 50%
• Residual income is required for HPML loans or when DTI exceeds 43%
• 1 person household: $1,500
• 2 person household: $2,500
• Add $150 for each additional household member

Assets

• 60-day asset verification required
• Deposits greater than 50% of gross income must be documented on purchases

Tradelines

• Requirements are not waived when the primary borrower has 3 credit scores
• Each borrower must have at least 3 traditional tradelines rated for at least 12 months
• At least 3 trades must reflect acceptable payment history
• Closed accounts may count if payment history is acceptable
• Deferred accounts without payment history cannot be used
• Borrowers without sufficient U.S. credit references are ineligible; foreign credit cannot be used

Reserves

• Up to $500,000: 3 months PITIA
• Over $500,000 to $1,500,000: 6 months PITIA
• Over $1,500,000 to $2,500,000: 9 months PITIA
• Over $2,500,000 to $3,500,000: 12 months PITIA
• Cash-out proceeds may be used to satisfy reserves
• Borrowers with multiple financed properties require an additional 2 months of subject PITIA total

Gift Funds

• Permitted on 1-unit properties only if borrower meets the minimum contribution
• Minimum contribution: 5% primary residence, 10% second home
• Gift funds cannot be used toward reserves
• 100% of down payment and closing costs may come from gifts for owner-occupied and second home transactions up to 75% LTV

Housing / Rental History

• Standard requirement: 0 x 30 in the last 12 months
• First-time homebuyer requirement: 0 x 30 in the last 24 months
• At least 1 borrower must have a 24-month rental history for FTHB loans
• FTHB limited to 1-unit primary residence only

Age of Documentation

• Credit reports within 120 days of note date
• Income and asset documentation within 90 days of note date

PPP

Not permitted.

VVOE / Business Verification

• Verbal VOE required within 10 days of note date for wage earners and 30 days for self-employed borrowers.
• Evidence within 30 days of note date that the business is active and operating, with a minimum 2-year operating history.

Personal Bank Statements

• 24 or 12 months of personal bank statements plus 2 months of business bank statements.
• Qualifying income is determined by total eligible deposits divided by the number of statements.
• Business bank statements must reflect business activity and transfers to the personal account.

Business or Co-Mingled Bank Statements

• 24 or 12 months of business bank statements.
• Qualifying income may use one of these methods: 50% fixed expense ratio, third-party CPA/EA expense ratio with a 10% minimum, or third-party prepared P&L from a CPA or EA.

P&L and 2 Months Bank Statements

• 24- or 12-month P&L prepared by a CPA, EA, or PTIN-licensed tax preparer.
• Minimum 2 months business bank statements.
• 760 minimum score required for LTV above 85% up to $1,500,000.

P&L Only

• Maximum loan amount: $1,500,000.
• 700+ score: max LTV is the lesser of matrix LTV or 80% owner-occupied / 75% NOO and second home.
• 680-699 score: max LTV is the lesser of matrix LTV or 75% owner-occupied / 70% NOO and second home.
• 24- or 12-month P&L prepared by a CPA, EA, or tax preparer, who must also attest to preparing the borrower’s most recent tax returns.
• Verbal verification of the P&L is required prior to closing.

IRS Form 1099

• 2-year or 1-year 1099 allowed.
• Fixed expense ratio of 10%.
• YTD documentation supporting continued receipt of income from the same source is required only when the most recent 1099 is more than 90 days from the note date.

Tip Income

• Typical borrower examples include restaurant servers, bartenders, and cab drivers.
• Must show at least one full year of tip income history with no employment gaps.
• WVOE with 2+ months bank statements allowed with 680 score to 80% LTV.
• Borrower may not be employed by family members or related individuals.

WVOE

• FNMA 1005 must reflect the past 2 years of income and employment and be completed by HR, payroll, or a company officer.
• Two most recent months of bank statements must support at least 65% of gross wages shown on the WVOE.
• Verification of delivery and receipt of FNMA Form 1005 is required.
• One-year history with the same employer and minimum 2 years in the same line of work.
• One-year 0x30 housing history required; borrowers without housing history are not permitted.
• W2s, tax returns, paystubs, and 4506-C are not required.
• No other active source of income is allowed, though passive income such as rental income may be included.
• Minimum 680 score; OO max 80% LTV; second home and NOO max 75% LTV.

Asset Utilization

• Eligible assets divided by 60 to determine monthly income, or by 36 months when DTI is 60% or less without using assets for income.
• Purchase and rate/term at 85% LTV or less follow the matrix.
• Above 85% LTV may be permitted per the matrix if DTI is 60% or less without using assets for income.
• Cash-out follows the matrix limits.
• ITIN allowed; see the Alt Doc ITIN section for limitations.

Less Than 2 Years Self-Employment Options

• Option 1: 18+ months self-employed with 3+ years prior experience in the same line of business.
• Option 2: Licensed professional with 12+ months business existence plus 3+ years prior experience in the same field or formal education in the related field.
• For both options: minimum 700 score; max 80% LTV owner-occupied / 75% second home / 70% NOO.
• Not available for P&L only documentation type.
• Not available for DU Option.

Credit Score

• Use the middle of 3 scores or the lower of 2 for the primary income earner.
• Additional borrowers must have a minimum score of 540.

DTI Requirements

• Maximum DTI: 50%.
• 40-year fixed loans must qualify as a 30-year at DTI of 55% or less.

Tradelines

• Primary wage earner must have 3 scores; or
• At least 2 open tradelines reporting for 24 months; or
• 3 open tradelines reporting for 12 months; or
• 24 months mortgage rating reporting on credit.

Residual Income (OO and 2nd Homes Only)

• Gross monthly income minus total monthly obligations.
• Applies to HPML loans or when DTI exceeds 43% on owner-occupied and second homes only.
• 1 person = $1,500.
• 2 persons = $2,500.
• Add $150 per additional household member.

First-Time Homebuyer

• Permitted up to a maximum loan size of $1,500,000 on owner-occupied, second home, and NOO.

Gift Funds

• Gift funds are permitted if borrower meets the minimum contribution: 5% primary, 10% second home/investment.
• Gift funds cannot be used toward reserves.
• 100% of down payment and closing costs may come from gift funds for owner-occupied and second home with a 5% LTV reduction to a maximum of 80%.

Reserves

• ≤ $500,000 = 3 months PITIA when LTV ≤ 80%.
• ≤ $500,000 = 6 months PITIA when LTV > 80%.
• $500,001 to $1,500,000 = 6 months PITIA.
• $1,500,001 to $2,500,000 = 9 months PITIA.
• $2,500,001 to $3,500,000 = 12 months PITIA.
• Cash-out proceeds may be used to satisfy reserves.
• Reserves are not required when asset utilization is the sole source of income.

Assets

• 30-day asset verification required.
• Deposits greater than 50% of gross income, or average deposits on a bank statement loan, must be documented on purchases.

Prepayment Penalty

• Required on investment properties when permitted.
• See PPP Requirements Matrix.
• No PPP – Correspondent only.

Age of Documentation

• Credit: 120 days.
• Income and assets: 90 days.

Underwriting Method

• DU Approve/Eligible and Approve/Ineligible.
• Ineligibility can only be due to loan size or feature, such as interest only.

Income

• Follow program documentation requirements.
• Follow program DTI restrictions.
• P&L only is not permitted.
• One-year self-employed is not permitted.

Credit Score

• Follow AUS except housing history must be 0x30x12 and no extenuating circumstances are allowed for BK or housing events.

Reserves

• LTVs above 85%: up to $1,500,000 with 760+ score requires 6 months PITIA.
• LTV at or below 85%: loans up to $2,000,000 follow DU findings.
• Loans above $2,000,000 must meet product reserve requirements.
• Reserves are not required when using asset utilization as the sole source of income.

Eligibility

• 740-759 scores with LTV above 85% are not eligible and must follow standard program requirements.

Loans with a Non-Occupant Co-Borrower

• Ratios for the occupying borrower and non-occupant co-borrower may be blended.

Appraisals / Property

• Reduced condo reviews are not permitted.

Program Overlays

• Max Loan Amount: $2,500,000
• Eligible Products/Terms:
• 5/6 SOFR ARM 30-Yr Term
• 5/6 I/O SOFR ARM 30-Yr
• 30-Yr FRM Full Am & I/O
• 15-Year Fixed Fully Amortizing
• I/O: ARMs and 30-Yr FRM= 30-yr Term only
• Tradelines:
• Waived with three (3) scores.
• Spouses may combine trades.
• If no full housing history and has 3 scores, OR when only 2 scores are available:
• 2 open & active trades for 24 months; OR 3 open & active trades for 12 months.
• Housing/Rental History:
• 0x30x12 plus VOR or VOM
• Credit Event Seasoning:
• 4 -years for BK, SS, DIL and 7-years for FCL.
• Max Cash-Out:
• If LTV > 60% = Max $750K (Not eligible with DU option for unlimited
• cash-out with 18 months additional reserves).

Income, Gifts & Property Restrictions

• Ratios and Qualifying:
• See Residual Income in the guidelines.
• Income Doc Types:
• Wage Earner: WVOE, 1-2 yrs W-2, 1-2-yrs 1040s plus
• transcripts; and VVOE within 10 days from closing.
• If FNMA DU Validation electronic vendor VOE w/Income is
• provided, then transcript is not required.
• No eligible for Express (DU)
• Self-Employed Borrower: 1-2-yrs 1040s plus transcripts;
• YTD P&L, plus 2-mos bank statements good thru the P&L
• period end date, transcripts; K-1s and Schedule E for
• business entities prior 1-2 yrs is >=25% ownership. Business
• Verification required within 30 days from closing.
• Gift Funds:
• Gift funds not permitted on NOO.
• Property Restrictions:
• Condo Warrantable – Max 80% LTV
• Condo Non-Warrantable – Max 75% LTV

Program Overlays

• Max Loan Amount: $2,500,000
• Eligible Products/Terms:
• 5/6 SOFR ARM 30-Yr Term
• 5/6 I/O SOFR ARM 30-Yr
• 30-Yr FRM Full Am & I/O
• 15-Year Fixed Fully Amortizing
• I/O: ARMs and 30-Yr FRM/30-yr Term only
• Tradelines:
• Waived with three (3) scores.
• Spouses may combine trades.
• If no full housing history and has 3 scores, OR when only 2 scores are available:
• 2 open & active trades for 24 months; OR
• 3 open & active trades for 12 months.
• Housing/Rental History: 0x30x12
• Max Cash-Out:
• LTV > 60% = Max $750K (Not eligible with DU option for unlimited cash-out with 18 months additional reserves).

Income, Gifts & Property Restrictions

• Income Doc Types:
• 12- or 24- months personal or business bank statements
• CPA/Tax Prep/EA 12-Month P&L + 2 months bank statements
• P&L Only not eligible
• 12- or 24- months 1099s
• Not eligible for (Du Option), WVOE w/Bank Statements or P&L Only.
• Asset Utilization: Supplemental or standalone (60 months only). May be combined with Full Doc Income as primary source of income.
• Gift Funds:
• Gift funds not permitted on NOO.
• Property Restrictions:
• Condo Non-Warrantable – Max 75% LTV