Income Analysis Forms and Formulas

Written By: Frankie Lacy

By now, many of us already know the basic formulas for calculating income. We also know that, in addition to executing formulas, underwriters are called to perform an analysis of the stability and continuance of qualifying income. This can be a daunting task when analyzing multiple business structures over two years. However, there are several forms and formulas we can utilize to assist us in this area.

The Fannie Mae form 1084 and the Freddie Mac form 91 are both income analysis forms that are tailored to self-employment income analysis. The idea of these forms is to exclude any wage-earning W2 income. From there, we calculate the total self-employment income figure from all sources for each tax year. These forms allow us to deduct non-recurring income and add back “paper-loss” deductions. Utilizing these forms, the underwriter can examine the flow of revenue versus the impact of expenses. In addition, underwriters can determine if the earnings are showing a declining trend.

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Many underwriters do not choose to use this form because they are unfamiliar with the mechanics of extracting the information from the tax returns to plug into the form. Once you become familiar with this form, you will find it a clear, logical, and comprehensive summary of the borrower’s self-employment earnings trends over the last two years.

The Fannie Mae form 1088 is the Comparative Income Analysis. This form allows the underwriter to calculate the percentage of increase or decrease in gross income, expenses, and taxable (or net) income for the business over a two to three year period. Again, this is a seldom used, but helpful tool for determining the viability of a business. For example:
A business shows the following taxable income for 2013-2012:
2013 - $250,000
2012: - $200,000
The difference between 2013 and 2012: $250,000 - $200,000 = $50,000
$50,000 / $200,000 = 25%
From this analysis we can determine there is a 25% increase in business because 2013’s income is greater than 2012’s. If taxable income was higher in 2012, we would still have a difference of $50,000 between the two years, but the percentage would represent a 25% decrease instead.

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One of my favorite formulas to use when analyzing income is the liquidity formula. This can help the underwriter determine that the borrower has sufficient income to meet its outstanding obligations. It is also particularly helpful when the borrower wants to use business funds to meet their cash to close requirement. Using this formula, you can determine if the business can afford a large withdrawal.
Using schedule L of the business tax returns, the following formula applies:
Cash on hand (line 1) + Accounts Receivable (line 2) + Other Liquid Assets (line 6) – Current Liabilities (lines 15-17) = Total Liquid Assets Available or Liquidity.

Finally, the Quick Asset Ratio can help the underwriter determine a business’s ability to meet immediate needs for cash. This ratio displays the amount of liquid assets available to cover each dollar of current debt. The standard ratio is 1:1, however, the larger the ratio, the better. For example; a 2:1 ratio indicates the business has enough assets to meet its liabilities twice over. Conversely, a 1:2 ratio shows that liabilities are double the current assets available.

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Current Assets – Inventory / Current Liabilities
I encourage underwriters to use all tools and resources available to determine the stability and viability of a business and the possibility for continuance of income. Using these forms and formulas adds credibility and professionalism to your analysis rationale. They can also assist other interested parties, such as auditors and loan originators, with understanding your ultimate decision on the file.

About The Author

Frankie Lacy - As an active NAMP® member and a NAMU®-CMMU designee, Ms. Frankie Lacy is a 13-year mortgage industry veteran with extensive conventional mortgage underwriting experience. Frankie is also a mortgage instructor for Mortgage Underwriter University ( Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration. If you're interested in becoming a writer for NAMP®, please email us at:


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.