A self-employed borrower shows increasing income over two years: Year 1 net income was $45,000 and Year 2 was $65,000. A CPA projects Year 3 income at $75,000. The qualifying income should be calculated as:
Correct Answer
B) $55,000 (average of the two years)
For self-employed borrowers, qualifying income is typically calculated by averaging the net income over the most recent two years of tax returns. Projections cannot be used for qualification, and the averaging method provides a more stable income assessment than using just one year.
Why This Is the Correct Answer
For self-employed borrowers, qualifying income is typically calculated by averaging the net income over the most recent two years of tax returns. Projections cannot be used for qualification, and the averaging method provides a more stable income assessment than using just one year.
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