During pre-qualification, a self-employed borrower states their annual income is $100,000. For pre-approval, they provide tax returns showing $75,000 in adjusted gross income after business deductions. How should the MLO proceed?
Correct Answer
C) Use the tax return income as it represents verified documentation
For self-employed borrowers, the Ability-to-Repay rule requires verification of income through tax returns or other acceptable documentation. The adjusted gross income from tax returns represents the borrower's actual qualifying income after allowable business deductions, which is what lenders must use for qualification purposes.
Why This Is the Correct Answer
For self-employed borrowers, the Ability-to-Repay rule requires verification of income through tax returns or other acceptable documentation. The adjusted gross income from tax returns represents the borrower's actual qualifying income after allowable business deductions, which is what lenders must use for qualification purposes.
More Origination Questions
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An MLO receives an appraisal report that shows the property value is $10,000 below the contract price. The borrower asks the MLO to request a 'second look' from the appraiser. What is the MLO's appropriate response?