Conventional Income & Employment: The Uncensored Truth

If you are a business owner, freelancer, or 1099 contractor, you know the pain of submitting years of personal and business tax returns to a bank. Under standard guidelines, self-employed borrowers must provide two full years of tax returns, and the underwriter will average the net income across both years.

Bypassing the 2-Year Rule

AAA Capital Funding utilizes Fannie Mae's Desktop Underwriter (DU) to secure expanded approvals. Under specific DU guidelines, if your business has been continuously operating for at least five (5) years, the automated system frequently waives the two-year requirement. You only need to provide your most recent ONE year of tax returns.

Even if your business has not been open for five years, DU will occasionally grant a 1-year tax return approval if your credit profile and liquid reserves are exceptionally strong. This allows us to use your most recent, highest-earning year without dragging down your average with a less profitable prior year.

Warning on Declining Income: If your business income dropped significantly (usually defined as 20% or more) from the previous year, the underwriter cannot average the income. They are required to use the lowest, most recent year's income, and must document that the business is stabilizing.

For standard W-2 salary or hourly employees, Fannie Mae and Freddie Mac require the lender to verify a two-year employment history. However, you do not need to be at the exact same job for two years. Changing employers—or even switching industries—is completely acceptable as long as the new income is stable.

Closing with a Future "Offer Letter"

If you just graduated college, relocated, or accepted a massive promotion, you do not have to wait to buy a home until you collect 30 days of paystubs. Conventional guidelines allow us to use Future Income to qualify you.

We can clear your loan for closing using a non-contingent Offer Letter or Employment Contract if:

• The letter clearly outlines your start date, salary, and position.
• There are no remaining contingencies (e.g., you already passed the background check and drug screen).
• Your start date is no more than 90 days after the mortgage closing date.
• Note: You must have sufficient cash reserves in the bank to cover your mortgage payments between the closing date and your first paycheck.

If a significant portion of your income comes from overtime, bonuses, or commission, the underwriter cannot simply look at your current paystub and multiply it by 12. Variable income is strictly analyzed for stability.

The 2-Year Averaging Rule

To use any variable income, Fannie Mae and Freddie Mac generally require a history of receiving it for the past two years. The underwriter will take the total amount of overtime/bonus earned over the last 24 months and divide it by 24 to find your average monthly qualifying amount.

The 12-Month Exception

If you have been receiving overtime or bonuses for less than two years, but more than 12 months, we can still use it! The underwriter simply needs your employer to complete a Written Verification of Employment (WVOE) stating that the variable income is "likely to continue" in the future.