Business liquidity & access to earnings
A profitable business can still fail the income test if pulling out the earnings would weaken the company.
Why liquidity matters
Pass-through tax income may exist even when cash remains inside the business. The lender has to determine whether the borrower can actually access the earnings without damaging the business.
Fannie
Fannie permits a documented stable history of distributions consistent with business income to establish access in certain scenarios. Otherwise the lender may need to evaluate liquidity using the applicable business-return analysis and documented rationale.
Freddie
Freddie requires the lender to analyze whether business income not reported on the personal return can be used without a detrimental impact on the business. Financial statements and recent business bank statements may support the analysis of current business health and liquidity.
Official guide baseline
Fannie Mae Selling Guide · Freddie Mac Seller/Servicer Guide
Agency guide and AUS findings control. Tax-return, business-analysis and lender-overlay requirements can change the usable income.