When qualifying a self-employed borrower, which documents are typically reviewed?

• A. Two years of personal and business tax returns, profit-and-loss statements, year-to-date earnings, and trailing 12 months of bank statements
• B. A W-2 and single paycheck stub
• C. Only bank statements for the past 90 days
• D. A CPA letter without tax returns

Answer: (A)

When qualifying a self-employed borrower, lenders look for a complete view of income and cash flow to gauge ongoing ability to repay. Two years of personal and business tax returns show the long-term earning history and how business deductions affect reported income. Profit-and-loss statements reveal actual profitability and how revenue and expenses trend over time, which helps verify what the tax returns imply. Year-to-date earnings provide insight into current performance, while trailing twelve months of bank statements corroborate cash flow, deposits, and any gaps or irregularities that tax returns and P&L alone might miss. Together, these documents give a robust picture of both personal finances and the business’s financial health.

Other options fall short because they don’t provide enough evidence of stable income and cash flow for a self-employed borrower. A W-2 and a single paycheck stub reflect employment income, not self-employment earnings. Bank statements for only the past 90 days don’t establish historical earning power or profitability. A CPA letter without tax returns lacks verifiable income history and cash flow evidence that lenders rely on to approve a loan.