A self-employed borrower shows net income of $120,000 in Year 1 and $140,000 in Year 2 on their tax returns. What is the monthly income used for qualifying?

Correct answer: $10,833

For self-employed borrowers, lenders typically average the most recent 2 years of income: ($120,000 + $140,000) / 2 = $130,000 annual average. Monthly = $130,000 / 12 = $10,833.33. If income is declining, some lenders may use the lower year only.