What Is Automated Income Assessment
Fannie Mae's automated income assessment system lets lenders verify your self-employed income electronically instead of manually reviewing every tax document. The system pulls data from your tax returns or gets IRS tax transcripts directly, then calculates your qualifying income automatically.
This matters because traditional self-employed income verification requires extensive manual review by underwriters. The automated system speeds up the process and can give lenders more confidence in the income calculation.
The system works through three methods: uploading your tax returns to a service provider, requesting IRS tax transcripts through a service provider, or using Fannie Mae's Income Calculator with your tax data.
Which Business Structures Qualify
The automated system works differently depending on how you file your taxes and which method your lender uses.
If your lender uploads tax returns to a service provider, these business structures qualify:
- Sole proprietorships reported on Schedule C
- S corporations with Form 1120S, Form 8825, and Schedule K-1
- Partnerships with Form 1065, Form 8825, and Schedule K-1
If your lender uses IRS tax transcripts instead of uploaded returns, only sole proprietorships on Schedule C qualify. Other business income from Schedule E or Schedule F makes your loan ineligible for the automated system.
Say you own an S corporation and also have rental income on Schedule E. If your lender wants to use tax transcripts, they cannot use the automated system because of the Schedule E income. They would need to upload your actual tax returns instead.
Income History Requirements
You must have received income from the same business for at least two years. The business structure must stay consistent across those years.
If your business has existed for less than five years, or you have owned it for less than five years, your tax returns must show at least two years of income or losses from that business. Income that appears on business tax returns but not on your personal returns cannot count as stable monthly income.
Your lender cannot use this system if they know of any reason your income might not continue for at least three years after closing.
Here is an example: You started a consulting business three years ago as a sole proprietorship. Your Schedule C shows income for the past two years. Even though the business is relatively new, you meet the requirements because you have two years of income history on your personal tax returns.
Tax Return Requirements
Your tax returns must be the most recent ones filed with the IRS. Your individual tax return year must match your business tax return year.
The system cannot process tax returns that are handwritten, amended, filed on a fiscal year basis, or from U.S. territories. If you have amended your tax returns, tax transcripts will not work for the automated assessment.
Your lender should confirm with you that the tax returns or transcripts they receive are actually the most recent ones you filed. This seems obvious, but borrowers sometimes provide older returns by mistake.
What Documents Your Lender Needs
The specific documents depend on which method your lender uses for the automated assessment.
For uploaded tax returns, your lender needs:
- Your individual federal tax returns for the required years
- Business tax returns (if applicable)
- IRS Form 4506-C or Form 8821 to request transcripts
- Any supporting documentation for adjustments to the income calculation
For IRS tax transcripts, your lender needs:
- IRS Form 4506-C or Form 8821 to request the transcripts
- Your individual tax returns for their files
- Documentation of any income adjustments
The lender will also need to verify that your business still exists and operates as described in your tax returns [[5304.1]].
Why Fannie Mae Created This System
Traditional self-employed income verification requires underwriters to manually analyze tax returns, calculate cash flow, and assess business stability. This process is time-consuming and subjective.
The automated system standardizes income calculations and reduces the risk of human error. When the system approves your income calculation, Fannie Mae provides representation and warranty relief to your lender. This means Fannie Mae takes responsibility for the accuracy of the income calculation rather than holding the lender liable.
This relief incentivizes lenders to use the automated system because it reduces their risk. For you, this can mean faster processing and potentially more favorable loan terms.
Common Problems and Complications
The automated system works well for straightforward situations but can hit snags with complex business structures or inconsistent reporting.
If your business changed structure during the required two-year period, the system cannot process your income. For example, if you converted from a sole proprietorship to an LLC taxed as an S corporation, the automated system will not work because the tax reporting structure changed.
Declining income creates another complication. If your business income dropped significantly year-over-year, the automated system may not provide favorable results, and your lender may need to manually underwrite your income anyway.
Amended tax returns block the use of tax transcripts entirely. If you amended any returns for the required years, your lender must upload the actual tax returns instead of requesting transcripts from the IRS.
When the System Says No
The automated system can return several different results, and not all of them help your loan approval.
If you receive a "Not Eligible" result, your lender must verify your income using traditional manual methods. This does not mean your loan is denied, but it does mean the process will take longer and require more documentation.
A "Partial" result means some of your income sources qualified for automated assessment but others did not. Your lender can use the automated calculation for the qualifying income but must manually verify the rest.
If the system finds inconsistencies between your uploaded tax returns and IRS tax transcripts, your lender must investigate and resolve the discrepancies before proceeding.
Multiple Income Sources
Many self-employed borrowers have income from multiple sources. The automated system evaluates each source separately.
Say you have a consulting business on Schedule C and also receive K-1 income from a partnership. The system will assess each income source individually. You might get approval for the Schedule C income but need manual verification for the partnership income.
Your lender can use the automated calculation for approved sources and traditional verification for the others. This hybrid approach can still speed up your loan processing compared to manual verification of all income sources.
References
For the official guidelines, see 5304.2: Automated income assessment using tax data in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains:
Data submission requirements
Representation and warranty relief eligibility and documentation requirements
(a)
Overview
Asset and income modeler (AIM) automated income assessment using tax data provides Sellers with the option to use certain Systems (as defined in
Section 2401.1(b)
) to determine whether the Seller is eligible for relief from enforcement of certain representations and warranties related to the Borrower’s self-employed income.
The Seller must obtain the Borrower’s tax data and submit all required data and information to the applicable System. Based on the data submitted, the System will assess for representation and warranty relief eligibility and return the results of the assessment.
Representation and warranty relief eligibility is contingent on the Seller's compliance with the requirements of this section.
References in this section to “service provider” mean a third-party service provider designated by Freddie Mac.
(i)
Tax returns uploaded to a service provider
If the Seller obtains federal income tax returns from the Borrower, the Seller will upload the tax returns to a service provider, which will produce a report (“Income Calculation Report”) consisting of data extracted from the Borrower's tax returns.
The Seller may also request from the Internal Revenue Service (IRS), via the service provider, a tax transcript of the Borrower's federal individual income tax return(s). If both tax returns and tax transcripts are obtained, Loan Product Advisor
®
will compare data from the Borrower's tax return to data from the tax transcript for assessment of tax return data representation and warranty relief eligibility and return the results of the assessment on the Feedback Certificate.
(ii)
Tax transcripts obtained from a service provider
Alternatively, the Seller may request from the IRS, via a service provider, a tax transcript of the Borrower's federal individual income tax return(s). Loan Product Advisor will retrieve the tax transcript data from the service provider and assess for income and data representation and warranty relief eligibility and return the results of the assessment on the Feedback Certificate.
(iii)
Freddie Mac Income Calculator using tax return or tax transcript data
The Seller may enter data from the Borrower’s federal individual income tax returns or tax transcripts into the Freddie Mac Income Calculator which will produce a Freddie Mac Income Calculator Certificate that details the results of the Freddie Mac Income Calculator submission, including the calculated income and representation and warranty relief eligibility.
(b)
(i)
Tax return
Self-employed income is an eligible income type for an automated assessment using tax return data if it is derived from the following business structures:
Sole proprietorships reported on IRS Schedule C
S corporations reported on IRS Form 1120S (including compensation of officers reported on IRS Form W-2), IRS Form 8825 and IRS Schedule K-1 (Form 1120S)
Partnerships reported on IRS Form 1065, IRS Form 8825 and IRS Schedule K-1 (Form 1065)
(ii)
Tax transcript
Self-employed income is an eligible income type for an automated assessment using tax transcript data when it is derived from a sole proprietorship and reported on IRS Schedule C.
Note: If other self-employed income is reflected on other tax schedules (e.g., Schedule E or Schedule F), the Mortgage is not eligible for an automated assessment using tax transcripts.
(c)
(i)
General underwriting requirements
The Borrower must have been self-employed and received income from the same eligible income source (i.e., business) on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or
Form 91, Income Calculations
(or a similar alternative form as described in
Section 5304.1
) for the most recent two years.
If the Borrower's business has been in existence for less than five years or the Borrower has owned the business for less than five years, the Borrower's federal income tax returns or tax transcripts must reflect at least two years of receipt of income and/or losses from the business. Income reported on the business tax returns but not on personal tax returns must not be considered as stable monthly income.
The Seller must have no knowledge, information or documentation that contradicts an expectation that the income will continue for at least the next three years.
(ii)
Federal income tax return and tax transcript requirements
The tax returns or tax transcripts used in the automated income assessment must be the Borrower’s individual and business, if applicable, U.S. federal income tax return(s) that were most recently filed with the IRS. Sellers are encouraged to always confirm with the Borrower that the tax return(s) or tax transcripts provided are the most recent filed with the IRS.
The individual tax return year most recently filed with the IRS must correspond to the business tax return year most recently filed with the IRS for all businesses (e.g., when the most recently filed individual tax return year is 2024, the most recently filed business tax return year must also be 2024).
The income and/or loss reflected in the federal income tax returns or tax transcripts must be reported for the same business on the same tax form structure (e.g., the business cannot be reported as a sole proprietorship and then converted to a partnership).
The tax returns must not be any of the following:
From a U.S. Territory
If the Borrower has amended their tax returns, then tax transcripts are not acceptable for assessment through the applicable System.
(iii)
Inconsistent or contradictory information
The Seller is responsible for investigating and resolving any inconsistent or contradictory information contained in the Income Calculation Report, the Freddie Mac Income Calculator Certificate,
Form 91
(or a similar alternative form), federal income tax returns, tax transcripts and/or the Mortgage file. For example:
If the Seller determines that a business from which positive Borrower income is calculated is no longer in operation, the Seller must exclude it from the qualifying income, or
If the Mortgage receives a tax return data representation and warranty relief result of “Not Eligible,” as described in
Section 5304.2(e)(iii)
below, due to inconsistencies between the tax transcript returned by the IRS via the service provider and the tax return(s) uploaded to the service provider, the Seller is required to resolve the discrepancy
If the Seller finds discrepancies, it must update the information in the applicable System and/or the Income Calculation Report and resubmit the data as necessary.
Note: For Mortgages that receive a tax return data representation and warranty relief result of “Eligible” as described in
Section 5304.2(e)(iii)
below, Loan Product Advisor has compared the data from uploaded tax return(s) to data from IRS tax transcripts and has found the data to be consistent; therefore, for eligible income, the Seller is not responsible for investigating inconsistent information between these documents.
(iv)
Other Guide provisions related to an automated income assessment using tax data
Refer to the following Guide provisions for additional requirements related to the automated income assessment using tax data:
Guide location
Verification of current existence of the business
(d)
(i)
Tax returns uploaded to a service provider
When tax returns are obtained and uploaded to a service provider, the Seller must:
Review and verify the Income Calculation Report, if applicable, against information in the Mortgage file to determine if any adjustments must be made. If so, the Seller must update the Income Calculation Report and upload it to the service provider, along with any additional documentation necessary to support the updates
Submit the most current version of the Income Calculation Report to Loan Product Advisor. Loan Product Advisor will assess, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income based on data from the federal income tax returns and the Income Calculation Report.
Note: If the Income Calculation Report is updated or additional income documentation is provided, the Seller must upload the updated report and/or income documentation to the service provider and submit the updated information to Loan Product Advisor.
Indicate in Loan Product Advisor that the Borrower is self-employed
(ii)
Tax transcripts obtained from a service provider
When tax transcripts are obtained from a service provider and not used with the Freddie Mac Income Calculator, the Seller must:
Submit the Mortgage to Loan Product Advisor, which assesses, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income reported on Schedule C based on data from the federal income tax transcripts
Indicate in Loan Product Advisor that the Borrower is self-employed
(iii)
Freddie Mac Income Calculator using tax data
When the Seller uses the Freddie Mac Income Calculator with tax data, the Seller must:
Submit accurate tax return data or tax transcript data, as applicable, to the Freddie Mac Income Calculator, which will assess, on an individual Borrower-level and an individual business-level basis, the calculation of income and/or losses from the eligible self-employed income.
Note: When using tax transcripts, the only eligible self-employed income is from a sole proprietorship, reported on IRS Schedule C as described in
Section 5304.2(b)
.
Indicate in Loan Product Advisor that a Borrower is self-employed if the data from the Freddie Mac Income Calculator Certificate is submitted to Loan Product Advisor
(e)
Representation and warranty relief eligibility and documentation requirements
(i)
Representation and warranty relief overview
Two types of relief from enforcement of representations and warranties are available through an automated income assessment using tax data. Eligibility for each type of representation and warranty relief is determined separately.
Income representation and warranty relief
Tax data representation and warranty relief
When using tax returns uploaded to a service provider, data representation and warranty relief may be available when the tax transcript is requested via a service provider and Loan Product Advisor compares the data from uploaded tax returns(s) to data from the IRS tax transcripts
When using tax transcripts obtained from a service provider, data representation and warranty relief may be available when the tax data is assessed by Loan Product Advisor
If multiple Loan Product Advisor submissions are made, Seller's eligibility for representation and warranty relief will be based on the results on the Last Feedback Certificate.
(ii)
Income representation and warranty relief results on Feedback Certificate
When income representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the relief available is described in the following table:
Income representation and warranty relief based on Feedback Certificate results
Eligible
The Seller is relieved from enforcement of the following representations and warranties:
Accuracy of the income calculation related to eligible self-employed income shown on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or
Form 91
(or a similar alternative form), as applicable, and
The business review and analysis described in
Section 5304.1(d)
, including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower
Partial
When partial income representation and warranty relief is granted for a source(s) as confirmed by the feedback message, the Seller is relieved from enforcement of the following representations and warranties:
Accuracy of the income calculation related to eligible self-employed income shown on the Income Calculation Report, the Freddie Mac Income Calculator Certificate or
Form 91
(or a similar alternative form), as applicable, and
The business review and analysis described in
Section 5304.1(d)
, including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower
Not eligible
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower's income.
Exception:
The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”.
Unavailable
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower's income.
Exception:
The Seller is relieved from enforcement of representations and warranties related to the Borrower’s income when a message is returned on the Freddie Mac Income Calculator Certificate indicating such relief. See table below titled “Representation and warranty relief based on Freddie Mac Income Calculator Certificate result”.
(iii)
Data representation and warranty relief results on the Feedback Certificate
When data representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the relief available is described in the following table:
Data representation and warranty relief based on Feedback Certificate result
Eligible
Tax returns uploaded to a service provider
The Seller is relieved from enforcement of representations and warranties related to the accuracy and integrity of the data from tax return(s) uploaded to the service provider for eligible self-employed income shown on the Income Calculation Report or
Form 91
(or a similar alternative form).
Tax transcripts obtained from a service provider
The Seller is relieved from enforcement of representations and warranties related to the accuracy and integrity of the data from tax transcripts obtained from a service provider for eligible Schedule C income.
Not eligible
The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider.
Unavailable
The Seller is not eligible for relief from enforcement of representations and warranties related to the accuracy and integrity of the data from the tax return(s) uploaded to the service provider.
(iv)
Income representation and warranty relief results on the Freddie Mac Income Calculator Certificate
When income representation and warranty relief eligibility results are provided on the Freddie Mac Income Calculator Certificate, the relief available is described in the following table:
Income representation and warranty relief based on the Freddie Mac Income Calculator Certificate result
Eligible
The Seller is relieved from enforcement of the following representations and warranties:
Accuracy of the income calculation related to eligible self-employed income shown on the Freddie Mac Income Calculator Certificate, and
The business review and analysis described in
Section 5304.1(d)
, including the analysis of the eligible self-employed income to support that the business has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower
Not eligible
The Seller is not eligible for relief from enforcement of representations and warranties related to the Borrower’s income.
(v)
Documentation requirements based on representation and warranty relief result on Feedback Certificate
When income representation and warranty relief eligibility results are provided on the Last Feedback Certificate, the documentation requirements are described in the following table:
Documentation requirements based on representation and warranty relief result on Feedback Certificate
Eligible
The Seller must maintain in the Mortgage file:
The most recent Income Calculation Report, the last Freddie Mac Income Calculator Certificate or
Form 91
(or a similar alternative form), as applicable
The Borrower's federal income tax returns or tax transcripts as applicable in accordance with
Section 5304.1(n)
Documentation to support adjustments as described in
Section 5304.2(d)(i)
above, if applicable
All documentation submitted to the service provider, including the most recent uploaded Income Calculation Report used by Loan Product Advisor
Section 5302.5
.
Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Form 4506-C.
When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must either:
Verify and document the income as required by the Guide, or
Remove the income and resubmit the Mortgage to Loan Product Advisor
Partial
The Seller must maintain in the Mortgage file:
The most recent Income Calculation Report, the last Freddie Mac Income Calculator Certificate or
Form 91
(or a similar alternative form), as applicable
The Borrower's federal income tax returns uploaded to the service provider or tax transcripts as applicable in accordance with
Section 5304.1(n)
Documentation to support adjustments as described in
Section 5304.2(d)(i)
above, when applicable
All documentation submitted to the service provider, including the most recent uploaded Income Calculation Report used by Loan Product Advisor
Section 5302.5
.
Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Form 4506-C.
When there are multiple income sources and one or more income source(s) are needed to qualify the Borrower, document the income source(s) as required by the feedback messages.
Not eligible
The income must be verified and documented as required by the Guide.
Unavailable
The income must be verified and documented as required by the Guide.
(vi)
Documentation requirements based on representation and warranty relief result on the Freddie Mac Income Calculator Certificate
When income representation and warranty relief eligibility results are provided on the Freddie Mac Income Calculator Certificate, the documentation requirements are described in the following table:
Documentation requirements based on representation and warranty relief result on the Freddie Mac Income Calculator Certificate
Eligible
The Seller must maintain in the Mortgage file:
The Freddie Mac Income Calculator Certificate reflecting the calculated income amount for each income source used to underwrite the Mortgage
The Borrower’s federal income tax returns or tax transcripts as applicable in accordance with
Section 5302.5
.
Note: IRS Form 8821 is an acceptable alternate form in lieu of IRS Form 4506-C.
When there are multiple income sources and one or more is eligible for income representation and warranty relief, for the income source(s) not eligible for representation and warranty relief, the Seller must verify and document the income as required by the Guide.
Not eligible
The income must be verified and documented as required by the Guide.
