Freddie Mac Self-Employed Income in 2026: Bulletin 2026-7 Updates

Freddie Mac's recent updates, reflected in the Freddie Mac Seller/Servicer Guide (via Bulletin 2026-7), have introduced significant changes in how self-employed income is assessed, especially for those with Schedule K-1 income. These changes are crucial for mortgage brokers to understand, as they can impact the qualification process for self-employed borrowers with less than 25% ownership in a business. The updates also touch on the use of guaranteed payments and the application of the Freddie Mac Income Calculator for representation and warranty relief.

What are the key changes in Bulletin 2026-7 for self-employed income?

Bulletin 2026-7 addresses several aspects of self-employed income, focusing on borrowers with less than 25% ownership in a business. This is particularly relevant for income reported on Schedule K-1. The bulletin allows for the use of ordinary income or guaranteed payments reported on Schedule K-1 as stable monthly qualifying income, provided certain conditions are met.

How does Schedule K-1 impact self-employed income calculations?

For borrowers with less than 25% ownership in a partnership or S corporation, Freddie Mac Single-Family Seller/Servicer Guide Section 5304.1 outlines that ordinary income or guaranteed payments for services can be used for qualification. The key is ensuring that the historical cash distributions align with the ordinary business income reported on the K-1s. This alignment is critical to demonstrate income stability and continuity.

What are the documentation requirements for Schedule K-1 income?

To use Schedule K-1 income in the qualification process, brokers must adhere to specific documentation requirements:

• Obtain Schedule K-1s for the most recent two calendar years.
• Ensure documentation of all year-to-date income, if available, such as the most recent paystub or equivalent.
• Verify that the borrower’s ownership interest is less than 25%.
• Confirm the current existence of the business as per Section 5304.1(m).

These steps ensure that the income used for qualification is stable and verifiable.

How does the Freddie Mac Income Calculator facilitate representation and warranty relief?

The Freddie Mac Income Calculator plays a pivotal role in the updated guidelines by offering representation and warranty relief. According to Section 5304.2, when the Income Calculator is used with tax data, the seller is relieved from certain representations and warranties related to the accuracy of the data. This relief is contingent on the data being submitted accurately and in alignment with the Loan Product Advisor.

What are the benefits of using the Freddie Mac Income Calculator?

Using the Freddie Mac Income Calculator provides several advantages:

• Accuracy and Efficiency: By automating income calculations, the calculator reduces the risk of human error and speeds up the processing time.
• Representation and Warranty Relief: Sellers can gain relief from certain representations and warranties, reducing liability and potential repurchase risks.
• Streamlined Process: The integration with Loan Product Advisor ensures a seamless flow of data, enhancing the overall efficiency of the loan approval process.

What practical steps can brokers take today?

To effectively navigate these changes, mortgage brokers should consider the following actions:

1. Review Bulletin 2026-7: Familiarize yourself with the details of the bulletin to understand the full scope of changes and how they impact your processes.
2. Update Documentation Practices: Ensure that your documentation practices align with the new requirements, particularly concerning Schedule K-1 income and ownership verification.
3. Use Technology: Utilize the Freddie Mac Income Calculator to streamline income assessments and take advantage of representation and warranty relief.
4. Educate Your Team: Conduct training sessions for your team to ensure everyone is aware of the updates and understands how to apply them in practice.

By staying informed and adapting to these changes, brokers can better serve their self-employed clients and enhance their operational efficiency.

For more on agency mortgage guidelines, see the Agency Guidelines hub.

This article is for informational purposes only and is not professional advice. Always verify against current guidelines before making decisions.