Rising income / declining income
Income trend affects how lenders apply the two-year average. Rising income (year 2 higher than year 1) is favorable — some lenders will use year 2 alone. Declining income is a red flag — lenders may use only the lower year or require documentation explaining the change.
How does this affect your loan? Estimate self-employed qualifying income with the
DTI calculator, or read the
self-employed mortgage guide.
Related terms
- Add-back — A non-cash or one-time business expense that can be added back to Schedule C net income when calculating quali…
- 1099-NEC / 1099-K — IRS forms reporting non-employee compensation. 1099-NEC covers freelance and contractor income paid by clients…
- W-2 income — Employer-reported wages documented on a W-2 form. Treated by lenders as the most verifiable income type — full…
- DTI (Debt-to-Income Ratio) — The percentage of your gross monthly income that goes toward debt payments. Front-end DTI covers housing costs…
- Qualifying income — The income figure a lender actually uses when calculating your DTI — not your gross revenue, not your total de…
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Sources
Educational definition only — not financial, legal, or tax advice. Programs and limits change; verify current terms with a licensed professional.