source:
  type: guide
  id: fnma-sel-b3-3.4-19
  authority: Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership
  description: Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership.
  coverage_tier: operative
obligations:
- id: fnma-sel-b3-3.4-19-full
  canonical_id: fnma-sel-b3-3.4-19-full
  section: Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B3-3.4-19 — Schedule K-1 Income <25% Ownership
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: '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. Published May 6, 2026 361 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. Recent Related
      Announcements The table below provides reference to recently issued Announcements
      related to this topic. Announcements Issue Date Announcement SEL-2026-02 March
      04, 2026 Section B3-3.5, Self-Employment Income Published May 6, 2026 362'
  judgment: false
