The loan team compares the file facts with Income Analysis Self Employed during a licensing team review. Which conclusion is accurate?
Correct Answer
B) Recalculate income when employment changes
Why this is correct: For self-employed borrowers, income must be analyzed based on tax documents, and if employment changes (e.g., a new business or loss of a client), the income calculation must be reassessed to ensure it remains stable and likely to continue. The original explanation anchors this by stating income analysis verifies stability, source, and continuance before ATR reliance. Why the other choices are wrong: "Use stated monthly income after documents show the amount was annual income" is wrong because annual income must be converted properly to monthly, not used as-is. "Average income from an undocumented second job" is wrong because income must be documented and verified, not averaged from undocumented sources. "Use gross deposits as income without resolving source and stability" is wrong because gross deposits may include non-income items, and source/stability must be verified for qualifying income. Exam tip: Always recalculate when a change occurs—self-employment income is especially sensitive to business changes.
Why This Is the Correct Answer
The correct response is "Recalculate income when employment changes" because Income analysis verifies stability, source, continuance, and calculation before ATR reliance.
Why the Other Options Are Wrong
Option A: Use stated monthly income after documents show the amount was annual income.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Option C: Average income from an undocumented second job.
This choice is not the best answer because it applies the wrong file step for income analysis and documentation; the governing rule is tested by the correct option.
Option D: Use gross deposits as income without resolving source and stability.
This choice is a tempting shortcut, but it conflicts with income analysis and documentation because the file still needs the required documentation, timing, or rule-based review before the action is taken.
Memory Technique
income analysis and documentation: identify the rule being tested, then choose the action that documents or applies that rule before the file moves forward.
Exam Tip
For income analysis and documentation questions, separate the required file step from plausible sales, timing, or documentation shortcuts.
Common Mistakes to Avoid
- -Choosing an internal exception instead of the governing rule
- -Treating preliminary or informal facts as a substitute for required documentation
- -Answering from a familiar but unrelated mortgage topic
More Origination Questions
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An MLO is reviewing procedures for a case where a cost changes after the Closing Disclosure has already been provided. What is the proper handling?
During a post-application update, a quality-control reviewer encounters a Credit Analysis and Evaluation issue. Which response should avoid a shortcut that would misapply the rule?
Between the Loan Estimate and closing, prepaid interest increases $180, homeowner insurance increases $95, transfer taxes increase $40, and a credit report fee for which the consumer could not shop increases $12. There is no valid revised estimate or other exception. Which increases violate TRID's zero-tolerance rule?
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Before closing, the team discovers that a borrower asks which upfront charge can be collected before intent to proceed. What is the safest compliant answer?
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Before releasing the final construction draw, which combination most directly supports project completion and clear collateral?
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A construction-to-permanent note states that conversion requires completion, a certificate of occupancy, and no unresolved liens. Construction is finished, but a mechanic's lien remains. What should happen?
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