Income Worksheet: qualify W-2, 1099 and K-1 income fast
What to pull, how agencies actually calculate qualifying income by income type, and a quick-estimate worksheet for a first-pass number while you're still on the call with the client.
This page is a triage tool, not underwriting. It gets you a defensible ballpark fast so you can tell a client where they stand. The file still goes through full underwriting against the actual investor/program guidelines before anything is final.
Salaried & hourly
Most straightforward income type, but overtime, bonus and commission each have their own rule.
Docs to pull
- Most recent 30 days of paystubs
- W-2s for the last 2 years
- Written VOE or verbal VOE near closing
- If <2 years at current job: offer letter or employment contract, and explanation for any gap
How it's calculated
- Base salary: annual salary ÷ 12, or hourly rate × average hours if variable
- Overtime, bonus, commission: needs a 2-year history and a reasonable likelihood of continuance — average the 2 years. If it's declining year over year, lenders typically use the lower (most recent) year, and a drop over ~20% usually needs a written explanation
- New job, same line of work: usually fine even without 2 years there, as long as income is stable or increasing and the field is consistent
Quick estimate
Schedule C
Qualifying income is net profit, with non-cash expenses added back — not the number on the bottom line the client expects.
Docs to pull
- Full personal tax returns (1040 + Schedule C), last 2 years, all schedules
- YTD profit & loss statement, often with 2–3 months of business bank statements to support it
- Business license or proof the business has been operating 2+ years
- CPA letter if the P&L isn't CPA-prepared
How it's calculated
- Start with net profit (Schedule C, Line 31) for each of the 2 years
- Add back depreciation, depletion, and business use of home — these reduce taxable income but aren't actual cash out the door
- Average the 2 adjusted years. If year-over-year is declining more than ~20%, expect the underwriter to use the lower year or ask for a written explanation
- Set client expectations early: the same write-offs that lowered their tax bill also lower their qualifying income — this is the single most common "why don't I qualify for more" conversation
Quick estimate
Partnership, S-Corp & multi-member LLC
Ownership percentage changes everything — confirm it before you calculate anything else.
Docs to pull
- K-1s for the last 2 years
- Personal 1040s for the last 2 years
- If ownership is 25% or more: full business tax returns (1120S or 1065) are required too, not just the K-1 — the borrower is treated as self-employed in that business
- Evidence of access to the income (not just that it was reported) — distributions, business bank statements, or a CPA/accountant letter confirming the business can support the distribution going forward
How it's calculated
- Start with ordinary business income (Box 1) plus guaranteed payments (Box 4), for each of the 2 years
- Add back depreciation and depletion, prorated to the borrower's ownership %
- Average the 2 adjusted years
- Confirm the income was actually distributed in cash, or that liquidity exists to support continued distributions — reported K-1 income sitting in retained earnings is the most common reason a K-1 file gets kicked back for more documentation
Quick estimate
Run it by the broker before you quote a number
Mixed income, declining trends, or ownership near the 25% line are exactly the files worth a two-minute gut check before the client hears a figure from you.