Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership

Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership

Effective 2026-03-04 · publisher's stamp for this provision

B3-3.4-19, Schedule K-1 Income <25% Ownership (03/04/2026) The following table provides income requirements for borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC). For borrowers who have more than 25% ownership, lenders must follow the verification of income requirements for self-employed borrowers. See B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower for additional information. Criteria Requirements Documentation The lender must obtain the most recent two years of • signed personal federal income tax returns, and • IRS Schedule K-1. When only rental income is reported on Schedule K-1, the lender must obtain • one year of signed individual federal income tax returns, and • IRS Schedule K-1. Income History A minimum two-year history is required. Income Continuance The lender is not required to verify continuance unless they have reason to believe the income may not continue. Criteria Requirements Determination of Qualifying Income • Income reported on Schedule K-1 can only be considered if the lender obtains documentation verifying: ⚬ the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or ⚬ the business has adequate liquidity to support the withdrawal of earnings. The lender may use discretion in the method used to confirm the business has adequate liquidity. • The lender is not required to analyze the viability of the business in accordance with self-employment requirements and may only use the borrower's proportionate share of earning reflected on Schedule K-1 when calculating the borrower's income. • If the borrower has a two-year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower's cash flow. Note: An exception to the two-year requirements of receiving "guaranteed payments to the partner" is if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or law firm) after having an established employment history with the partnership. In this situation, the lender may rely on the borrower's guaranteed compensation. This must be evidenced by the borrower's partnership agreement and further supported by evidence of current year- to-date income.

Source: Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership · source URL · snapshot 2897f21e1e729b42