Self-Employed Borrowers: Documentation and What Michigan Realtors Should Know

Self-employed buyers can purchase homes in Michigan every week. The difference is rarely motivation. It is documentation, timing, and the way qualifying income is calculated. A Realtor who understands the shape of that work can write a cleaner offer timeline without trying to underwrite the file. This article is educational. It is not tax advice, an income calculation, or a credit decision. A loan officer and an underwriter decide whether a particular year’s figures can be used.

Fannie Mae’s Selling Guide, section B3-3.2, addresses self-employment income. In general, a borrower who has an ownership interest of 25 percent or more in a business is treated as self-employed for this purpose. Freddie Mac has a parallel framework in its Seller/Servicer Guide. The typical documentation starting point is two years of personal and, when applicable, business federal tax returns, plus a year-to-date profit-and-loss statement and a balance sheet when the guide or the lender requires them. K-1s, 1120 or 1120-S returns, 1065 returns, and 1099s may all appear, depending on how the business is organized. A recent CPA letter can be useful context. It does not replace the returns.

Qualifying income is not the same as last year’s top-line revenue, and it is not the same as the number a buyer uses when talking about “what I take home.” Underwriters generally start from taxable income and then consider allowable add-backs — for example, certain depreciation or depletion — only as the guide and the documentation support them. A declining income trend can limit what may be used, or can require a written explanation and a conservative average. A newly self-employed borrower may not have the required history. None of those outcomes should be predicted from a kitchen-table conversation.

Time is the hidden variable. Tax returns, especially if an extension was filed, can lag the offer calendar. A buyer who is shopping in April may still be waiting on a CPA. A buyer who had a strong year and a weak year may need both years reviewed before anyone should talk about a maximum price. The most helpful thing a Realtor can do, early, is to ask whether the buyer has already spoken with a loan officer and whether the documentation is already in a file — not how much they “usually make.”

There are other documentation paths, including bank-statement programs, that some lenders offer when agency tax-return analysis is not a fit. Those paths are not the same as a Fannie Mae or Freddie Mac standard documentation file. They often have different reserve, credit, and loan-size expectations, and they are not a way to skip income review. This site’s self-employed and bank-statement guide explains that distinction at a beginner level. Use it, then let the loan officer say whether any such path is even on the table for the buyer.

For Michigan Realtors, a few local realities show up often. Many self-employed buyers here are tradespeople, agency owners, medical or professional-practice principals, or independent contractors whose income is real but lumpy. A purchase in Oakland, Macomb, or Wayne County can still close on a normal timeline when the file is started early. The files that struggle are usually the ones where an offer is written first and the tax returns are requested later. If a buyer volunteers that they are self-employed, a useful next sentence is: Ask a loan officer what documentation the file will need, and how long that work usually takes, before anyone sets an offer date.

Questions that help, and that stay on the right side of the Equal Credit Opportunity Act, are about process and timing: Have you already shared tax returns with a loan officer? Are your most recent federal returns filed? Are you expecting a large change in this year’s figures? Do you have a partner or a payroll employee whose pay might also be part of the file? Do not use those answers to invent a qualifying number, and do not ask prohibited-basis questions about marital status, family composition, national origin, or similar characteristics as a way to “size up” the buyer. Realtors do not make credit decisions.

What to avoid in marketing or in a listing conversation: promising that depreciation “will be added back,” promising that one year of income is enough, or treating a self-employed offer as automatically weaker. What to do instead: get the buyer to a loan officer early, leave time for the documentation, and write contract dates that match the work ahead. If you want to talk through timing on a file, without sharing client financial details in an unsecured form, schedule a Realtor strategy conversation with Shane. Education on this page is free and is not conditioned on a referral.

A short working sequence helps most teams. First, the buyer talks with a loan officer and authorizes a file, even if no property has been chosen. Second, the tax returns and, if needed, a year-to-date profit-and-loss statement go to the processor. Third, the loan officer comes back with a documented preapproval that reflects the income that can actually be used, not the income the buyer hoped could be used. Fourth, the Realtor writes an offer that matches that letter and that leaves enough time for any remaining business documents, a condo questionnaire, or a gift. Skipping to step four is how a self-employed file becomes a delayed file.

Ownership structure deserves a quiet check, not an interrogation. A buyer who owns a business with a partner may need the partner’s information, or may not, depending on the tax form and the percentage of ownership. A buyer who pays themselves a W-2 wage from an S corporation and also takes a distribution is still generally in the self-employed framework if the ownership test is met. A buyer who recently moved from W-2 employment into a practice or a trade may be treated as having a shorter self-employment history than they expect. These are reasons to start early, not reasons to invent a rule of thumb about who “will not qualify.”

If a listing agent receives a self-employed offer, the fair questions are the same ones that apply to any offer: Is there a current preapproval letter from a named lender? Does the letter match the contract price and the program? Are the financing and appraisal dates realistic for the documentation still outstanding? Asking those questions is part of representing a seller. Guessing at the buyer’s tax return is not. Shane’s practice is to help Realtor partners understand the timing and the documentation shape of a file, and to put updates on a predictable calendar, without asking a Realtor to interpret tax forms.

Educational only. Not a loan approval, a legal opinion, or a commitment to lend. Not all applicants will qualify.