Reviewing a Tax Return/Financial Statement

Written By: Glenn Michaels, Op-Ed Writer

All mortgage applicants except for those applying for a streamlined refinance must submit their most recent personal tax returns for the most recent year or their most recent personal tax returns for the most recent two years.

Applicants that are self – employed have to submit their business returns for the most recent two years and their personal returns for the most recent 2 years. Applicants whose business income is older than ninety days at the time of underwriting will also have to submit an audited profit and loss statement and/or certified true copies of their quarterly filings along with a signed IRS form 4506 – T.

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The major problem for many individuals in the mortgage industry is “now that I have the required documentation, what does all those number mean?”

Most underwriters utilize a form created by Federal National Mortgage Agency called, “Cash Flow Analysis” or the “FNMA form number 1084.” In fact, all Mortgage Loan Originators, Mortgage Loan Processors in addition to mortgage underwriters should have a supply of these forms handy for use to determine the applicant’s income.

Many loan operating systems have this form in their system to assist in determining the income to use to qualify the applicant. In fact some of the loan operating systems have made the self – employed income analysis very painless. If you can point with a mouse then you know line by line what numbers to use to determine the income.

I have received tax returns both business and personal some as large as a dictionary and utilizing the FNMA 1084 form the income calculation is painless and almost idiot proof.
The FNMA 1084 form bypasses line items that we do not need to consider and goes to the lines that we need to consider when determining the income.

When reviewing the FNMA form 1084 that is completed correctly the earnings trend can easily be determined and almost anyone can see for themselves if a business is on an upward trend, a downward trend or stable.

When the year to date profit and loss statements and/or quarterly filings are reviewed along with the figures contained in the FNMA 1084 form anyone can see if the borrower is an acceptable risk based on the self – employed analysis.

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Underwriters must average the income over the most recent twenty four months if the earnings trend is moving upward from one year to the next. If the earnings trend is declining the underwriters must use the current or lower income and average that income over the most recent twelve months. In reality, underwriters must use the most conservative approach to determine the borrower’s income.

Mortgage loan originators, mortgage loan processors and borrowers need to think like mortgage loan underwriters so their mortgage application(s) can be go more smoothly through the process especially when there are tax returns to review.

About The Author

Glenn Michaels - As an NAMP® Opinion Editorial Contributor, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter ( As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years. 

Opinion-Editorial (Op-Ed) Disclaimer For NAMU® Library Articles: The views and opinions expressed in the NAMU® Library articles are those of the authors and do not necessarily reflect any official NAMU® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMU®. Nothing contained in this articles should be considered legal advice.