CRU Income & Employment Verification 3

Question 1

A borrower recently transitioned from a W-2 employee to self-employed in the same industry.
After how many years of self-employment tax returns is the income generally acceptable under agency guidelines?

Accepted Answer

Two years of self-employment tax returns

Answer

Six months with a strong profit and loss statement

Answer

One year if income is stable or increasing

Answer

Three years to establish a consistent track record

Question 2

Which of the following is the MOST reliable method to verify the existence and stability of a self-employed borrower's business?

Accepted Answer

A business license, CPA letter, or listing in a recognized directory such as 411.com

Answer

A signed letter from the borrower attesting to the business's viability

Answer

Three months of the business bank statements

Answer

The borrower's LinkedIn profile showing business history

Question 3

When calculating qualifying income from a partnership (Schedule E, Part II), the underwriter includes the borrower's share of:

Accepted Answer

Ordinary income plus depreciation, depletion, and amortization add-backs

Answer

Total gross revenue of the partnership

Answer

Net income minus any guaranteed payments to partners

Answer

Only distributions actually taken by the borrower

Question 4

A borrower's income declined significantly from Year 1 to Year 2 of self-employment. Which approach should the underwriter take?

Accepted Answer

Use Year 2 income only, since it is the most current

Answer

Average both years and use the result as qualifying income

Answer

Use Year 1 income only, since it is higher and more favorable

Answer

Decline the loan, as declining income disqualifies the borrower

Question 5

Which of the following scenarios represents an unacceptable employment gap that would likely affect income qualification?

Accepted Answer

A borrower left employment 30 days ago and has not yet started a new position

Answer

A borrower returned to work after a 3-month medical leave with doctor's documentation

Answer

A borrower who was unemployed for 6 months two years ago is now employed and stable

Answer

A borrower took 4 months of maternity leave and returned to the same position

Question 6

An underwriter receives two pay stubs showing consistent income, but the 4506-C tax transcript reflects significantly lower income than what was stated on the application. What is the underwriter's required action?

Accepted Answer

Investigate the discrepancy and resolve it before approving the loan

Answer

Use the pay stubs as they are more current than the tax return

Answer

Average the tax transcript income with the pay stub income

Answer

Accept the higher income and note the discrepancy in the file

Question 7

Social Security income for a non-retired borrower (e.g., disability) is grossed up by a factor of 125% when it is:

Accepted Answer

Non-taxable, based on the borrower's tax return showing no tax owed on the income

Answer

Verified with an SSA award letter dated within 12 months

Answer

Received for at least two years per IRS records

Answer

Paid directly into a joint bank account