K-1, partnership & S-corporation income
Income shown on a K-1 is not automatically cash the borrower can use to pay the mortgage.
Fannie ownership threshold
Fannie treats a borrower with 25% or more ownership as self-employed. K-1 borrowers below 25% have a separate income section with their own documentation rules.
Access to income
For partnership or S-corporation income, Fannie may require evidence that the business has adequate liquidity to support withdrawal of earnings. A stable history of cash distributions consistent with the income used can remove the need for further access/liquidity documentation in certain scenarios.
Freddie
Freddie likewise distinguishes income carried through the K-1 from actual cash distributions. Current Freddie guidance says K-1 cash distributions are not themselves qualifying income, but can help demonstrate business liquidity and access when reasonably consistent with ordinary income.
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.