Mastering self-employed borrower income analysis for tax year 2023

Sandra Sweeney, MGIC senior customer trainer, walks through self-employed borrower income analysis in our latest Mortgage Connects podcast episode. Sandra details what income calculation tools and resources are available to assist you in your calculation of self-employed borrower income for tax year 2023. She highlights the IRS tax changes that will impact your cash flowing process and also details GSE guidelines changes in the past year that you'll need to take into consideration. Find out how you, too, can become SEB-proficient! 

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Episode Transcript

Speaker 1 (00:04):
Welcome to Mortgage Connects by MGIC, bringing you
the latest insights from topmortgage professionals around
the industry.
I'm your host, ConcepcionCarrero, and joining me today is
MGIC's senior customer trainerand program designer, Sandra
Sweeney.
During this podcast, Sandrawill be speaking to us about
MGIC's self-employed borrowerprogram.
She will be going over whattools and resources we have

(00:27):
available for you and giving usa heads up to any IRS or agency
changes that may impact how wereview and analyze self-employed
borrower's income.
Sandra, can you tell us alittle bit about our SEB program
, especially what updates andchanges our listeners should be
aware of?

Speaker 2 (00:45):
Thank you, concepcion .
You know I was recently askedwhat makes MGIC's self-employed
training program so popular.
I'm proud to say that MGIC hasa strong history of offering
comprehensive self-employedtraining designed to help folks
master the foundational conceptsin order to build their

(01:05):
confidence when it comes todealing with these complex
borrowers.
That training, along with muchloved income calculation tools
and other resources, are whatour lender partners appreciate.
We spend a considerable amountof time tracking any IRS changes
, as well as any agencyguideline changes that may

(01:28):
affect the way we analyzeself-employed income.
Each year in February, we rollout our updated income
calculation tools and shortlyafter that, our training
includes case studies with oursample borrower tax returns for
the most recent tax year.
So I thought I would share withour listeners what resources we

(01:49):
currently have for them when itcomes to understanding and
calculated self-employed income,as well as discuss what changes
have occurred in the last year.
Our self-employed program wasdesigned with a goal of making
your life easier.
Of course, when you receive aloan application, you discover
that your borrowers have aninterest in five different

(02:12):
companies and own three rentalproperties.
Your initial reaction might notbe positive, because you know
that you're going to be facingmore work and possibly some
challenges.
However, I would like to remindmortgage professionals that
self-employed individuals doknow a lot of folks and, as such

(02:34):
, they can become rich sourcesof referral for your business.
And, of course, in our currentlending environment, growing a
referral-based business isparamount.
Wherever you are in yourjourney of understanding the
self-employed borrower, we arehere to help.
We offer seven different SEBwebinars that will take you,

(02:58):
step by step, through yourjourney to understanding the
self-employed borrower.
We take the mystery out ofreviewing tax returns and
analyzing businesses forstability of earnings and
continuance of income.
We give you the foundationaltools that will prepare you to
face any circumstance that youmay encounter.

(03:20):
We take you through the processthat you need to develop.
That goes beyond just pluggingin numbers into a worksheet, and
this will keep you out oftrouble in the qualification
process.
One of our biggest value ads areour income calculators.
We constantly receive feedbackfrom our lender partners telling

(03:43):
us how helpful anduser-friendly our worksheets are
as tools in the correctcalculation of self-employed
income.
They are especially helpful tothose that are newer to the
self-employed borrower, as theycontain line-by-line help as
well as built-in guidance and aseparate help document.

(04:03):
Our calculators can be found atmgiccom forward slash s, e, b
and are currently updated forthe tax year of 2023.
We recently developed anall-in-one self-employed income
calculator that incorporatesfour different worksheets in one

(04:26):
Excel workbook.
This includes the SAM Cash FlowAnalysis Worksheet, the
Liquidity Worksheet, theComparative Analysis Worksheet,
as well as the Profit and LossWorksheet, so you should have
everything you need to analyzeyour borrower's business income
all in one calculator.

(04:47):
Our calculator is offered inboth macro-enabled and
macro-free versions.
Okay, what's new when it comesto analyzing 2023 tax returns?
Due to IRS changes, there wereminimal line item changes, which
have now been incorporated intoour line-by-line guidance.

(05:08):
The standard mileage deductionfor 2023 is 65.5 cents per mile,
and the portion that can beattributed to depreciation has
now increased to 28 cents permile.
It should be noted that thetemporary IRS provision allowing

(05:28):
business owners to claim up to100% of meals has now expired,
so for tax year 2023, businessowners will once again be capped
at claiming 50% of the actualmeal expenses.
Now, when it comes to Fannie Maeand Freddie Mac and the

(05:48):
self-employed borrower, fannieMae recently announced the
creation of a new tool, incomecalculator, which is intended to
assist lenders in accuratelydetermining the monthly
qualifying income forself-employed borrowers.
Additional guidance wasprovided when borrowers have
less than a two-year history ofself-employment, confirming that

(06:10):
at least one-year history isrequired.
When it comes to documentationrequirements for the
self-employed borrower, fannieMae is aligning a bit closer to
Freddie Mac in that if yourself-employed borrower's
business has been in existencefor five years and the borrower
has had a history of ownershipinterest for the last five years

(06:31):
, then only one year of personaland business tax returns will
be required.
Desktop Underwriter has beenupdated as of January 1, 2024.
Please pay close attention tothe documentation requirements
included in your DU findings.
You know, concepción, I believethat knowledge leads to

(06:55):
confidence.
If you immediately becomeanxious when you find out that
your self-borrower isself-employed, or if your
eyesight blurs upon looking attax returns, then please avail
yourself of our MGIC SEBtraining tools and resources.
I promise they will help youbecome SEB proficient.

(07:18):
As always, please do nothesitate to reach out to your
MGIC account manager or myselfif we can support you in any way
.

Speaker 1 (07:31):
Zandra, thank you very much for the quick SEB
insights and, just like Zandramentioned, you can access the
self-employed borrower andincome analysis calculators by
going to mgiccom backslash SEB.
Thanks for listening.
For all the latest industryinsights, subscribe to
MargeConnect on Apple, GooglePodcast, Spotify, Amazon Music

(07:51):
or go to margconnextcom.