Freddie Mac Form 91: Self-Employed Income Calculation Walkthrough

Freddie Mac Form 91 is the worksheet a mortgage lender uses to turn a self-employed borrower’s tax returns into a stable monthly income figure for loan qualification. It pulls numbers from the borrower’s personal and business returns, adds back non-cash expenses like depreciation, averages the result across the most recent two years, and produces the income the underwriter uses to decide whether the loan works. The lender completes the form, not the borrower, and the current version is available on Freddie Mac’s Single-Family site at sf.freddiemac.com.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

If you are the borrower, your job is to hand over complete, accurate tax paperwork. The analysis itself happens on the lender’s side, but understanding what the form does will tell you why underwriting asks for what it asks for, and why your qualifying income may not match the income you think you earn.

When Form 91 Applies

A lender must complete Form 91, or an equivalent in-house analysis, whenever a borrower owns 25% or more of a business. At that ownership threshold, Freddie Mac treats the borrower as self-employed regardless of the entity type: sole proprietorship, partnership, S-corporation, or C-corporation.2Freddie Mac. Guide Section 5304.1 The form itself does not replace the broader analysis requirements in Chapters 5304 and 5305 of Freddie Mac’s Seller/Servicer Guide; it is a calculation tool that documents how the lender arrived at the income figure.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

Underwriters generally want to see at least a two-year history of self-employment to establish that the income is stable and likely to continue. A shorter track record can work if the borrower has documented experience in the same field from prior employment.2Freddie Mac. Guide Section 5304.1

Tax Documents You Need to Provide

Before anyone touches the worksheet, the borrower has to gather the right paperwork. Lenders need the most recent two years of signed federal individual income tax returns (Form 1040), including every schedule and attachment. Which business returns are also required depends on how the business is structured:

Supplemental schedules fill in the rest. Schedule E reports rental real estate, royalties, and pass-through income.5Internal Revenue Service. About Schedule E (Form 1040), Supplemental Income and Loss Schedule F reports farming income and losses. Every page and every supporting statement has to be included. Incomplete returns are one of the most common reasons files bounce back to the loan officer for corrections.

If you don’t have copies of filed returns, request transcripts from the IRS using the “Get Transcript” tool or ask your tax preparer. The lender will independently verify your returns later using Form 4506-C, so altered copies will be caught.

How the Form Is Organized

Form 91 breaks the income analysis into five sections, each tied to a different tax return or entity type.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

  • Section I covers IRS Form 1040 items: W-2 wages from the self-employed business, Schedule B interest and dividends, Schedule C sole proprietorship income, Schedule D capital gains, Schedule E royalties, and Schedule F farm income.
  • Section II handles partnership income from Schedule K-1 and Form 1065.
  • Section III handles S-corporation income from Schedule K-1 and Form 1120-S.
  • Section IV handles C-corporation income from Form 1120.
  • Section V is the summary, pulling subtotals from the prior sections into one total and dividing by the number of months to produce the qualifying monthly figure.

Not every borrower uses every section. A sole proprietor filing only a Schedule C stays mostly in Section I and jumps to the summary. Someone with both a sole proprietorship and a partnership interest completes Sections I and II before the summary pulls both streams together.

Walking Through the Calculation

Schedule C: Sole Proprietors

The starting point is the net profit or loss on line 31 of Schedule C, the bottom line after all deductions.6Internal Revenue Service. Schedule C (Form 1040) – Profit or Loss From Business From there, the form adds back expenses that reduced taxable income but did not actually move cash out of the business during the year:

  • Depreciation, from line 13 of Schedule C. This is usually the largest add-back, because depreciation is an accounting write-down of asset value rather than cash leaving the business.
  • Depletion, which works like depreciation but applies to natural resources.
  • Business use of home, since the home-office deduction does not represent cash the borrower pays beyond existing housing costs.
  • Amortization and casualty losses, which are either non-cash or non-recurring.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

A few items move the other direction. Meals and entertainment are only 50% deductible on the tax return, so the borrower actually spent more cash than the Schedule C deduction reflects, and the underwriter adjusts to capture the full outflow.7Internal Revenue Service. Topic no. 511, Business Travel Expenses Capital gains and one-time windfalls, such as selling equipment at a profit, are generally excluded because they will not recur and would inflate the average.

Vehicle Mileage

When a borrower uses the IRS standard mileage rate rather than actual vehicle expenses, only a portion of that rate reflects depreciation. For 2026, the depreciation component is 35 cents per mile. The underwriter adds back only that depreciation portion; the rest of the mileage rate covers fuel, maintenance, and insurance, which are real out-of-pocket costs that properly reduce qualifying income.

Partnerships and S-Corporations

For income reported on a Schedule K-1 from a partnership (Form 1065) or S-corporation (Form 1120-S), the analysis captures the borrower’s share of ordinary income and then applies the same add-back concepts (depreciation, depletion, amortization, casualty losses), only pulled from the entity’s return rather than Schedule C.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

Pass-through entities add a wrinkle. Freddie Mac does not set a fixed distribution requirement, but it does require the lender to document that the business has enough liquidity to sustain the distributions the borrower has been receiving. If the K-1 shows $120,000 of allocated income but the business only distributed $40,000 and holds thin cash reserves, the underwriter will likely limit qualifying income to what the borrower can realistically and consistently withdraw.

C-Corporations

C-corporation analysis in Section IV follows the same shape. Start with taxable income from the corporate return, then add back depreciation, depletion, amortization, casualty losses, and any net operating loss, with adjustments for nonrecurring items that would distort the borrower’s typical earnings.1Freddie Mac. Freddie Mac Form 91 – Income Calculations (Schedule Analysis Method)

Averaging and Declining Income

The lender averages income across the most recent years of tax data.8Freddie Mac. Guide Section 5303.1 In the simplest case, with two years of stable or growing earnings, the underwriter adds the two years, divides by 24, and the result lands in Section V as the qualifying monthly figure.

Declining income triggers extra scrutiny. When the drop between the prior year and the current year or year-to-date earnings exceeds 10%, the lender must request additional documentation, analyze the cause, and determine whether the trend is likely to continue.8Freddie Mac. Guide Section 5303.1 A one-time dip from a large equipment purchase is treated very differently from a business steadily losing clients. In some cases the underwriter will use only the lower year, or the year-to-date figure, instead of a two-year average, which can meaningfully reduce purchasing power.

Verification and Letters of Explanation

Once the documents are in, expect the lender to come back with questions. Common triggers for a Letter of Explanation include a large year-over-year swing in revenue, unusual one-time deductions, or Schedule F farm income (where the underwriter needs confirmation the farm is not on the property being purchased). A few clear sentences explaining the circumstances are usually enough.

Before final approval, the lender files IRS Form 4506-C to pull official tax transcripts through the Income Verification Express Service and compares them against the returns you provided.9Internal Revenue Service. Income Verification Express Service If the numbers match, the file moves toward closing. If they don’t, the file stalls, and depending on the nature of the discrepancy it may be referred for fraud review.10Internal Revenue Service. IVES Request for Transcript of Tax Return

The Risk of Misrepresenting Income

Falsifying income on a mortgage application, whether by inflating revenue, omitting debts, or submitting doctored tax returns, is a federal crime under 18 U.S.C. ยง 1014. The statute reaches false statements made to federally insured financial institutions, mortgage lenders, and entities originating federally related mortgage loans. A conviction carries a fine of up to $1,000,000 and a prison sentence of up to 30 years, or both.11Office of the Law Revision Counsel. 18 USC 1014 – Loan and Credit Applications Generally

Because the 4506-C transcript pull is designed to catch exactly this kind of discrepancy, altered returns are almost certain to be detected. Provide the exact returns you filed, and let any legitimate income adjustments happen inside the Form 91 analysis itself. The add-backs for depreciation and other non-cash expenses often give self-employed borrowers more qualifying income than the bottom line of their tax return suggests, and that is the right way to capture it.