A straight answer
I became a partner at work. Do I need two years of K-1s before I can buy?
The direct answer
Not always. A partner who owns less than a quarter of the business is documented with two years of K-1s and returns, and a partner with nominal ownership in a professional-services firm may qualify on guaranteed compensation rather than a K-1 history. I'm Zach von der Linden (NMLS 1652805), a mortgage broker with West Capital Lending, based in San Clemente.
I arrange loans with lenders and put the financing together. Which rule applies depends on your ownership share, how the partnership pays you, and whether the income actually reaches your account, so the first thing I read is the partnership agreement. Text or call me with your ownership share, the date you became a partner, what you did there before, and how you are paid, and I will tell you which path fits. I work with homeowners in California, Utah, Oregon and Arizona.
Zach von der Linden, mortgage broker and Branch Manager, West Capital Lending · NMLS 1652805
Wholesale pricing · California, Utah, Oregon and Arizona
5.0 across 66 reviews on Experience.com (read on 2026-09-24) · Text reaches Zach directly · Last updated 2026-10-17
Just made partner? Text me your ownership share, the date it changed, how long you worked there before, and how the partnership pays you. Those four facts decide which rule applies.
No credit pull happens from a text or a call. Texts and calls go to Zach's cell.
What happens after you text me?
Texts go straight to my cell, and I answer them myself when I'm free. I'll ask for the few details that actually matter, tell you whether the structure looks worth pursuing, and explain the next step. If I don't think the loan fits, I'll tell you that too.
A text or phone conversation does not pull your credit.
Which K-1 rule applies to me?
Your ownership share decides which rulebook you are in. Fannie Mae draws the line at a quarter of the business. Below it, the lender follows the Schedule K-1 topic: it obtains "the most recent two years of" "signed personal federal income tax returns, and" "IRS Schedule K-1," plus a verbal verification of employment, it asks for "A minimum two-year history," and it "may use only the borrower's proportionate share of earnings reflected on Schedule K-1 when calculating the borrower's income" without analyzing the viability of the business (Fannie Mae Selling Guide B3-3.4-19).
At or above the line you are a self-employed borrower. The lender obtains your signed personal returns and, in some cases, business returns for the past two years with all schedules, or IRS transcripts of them, and completes a cash flow analysis on Fannie Mae's Form 1084 or a tool that applies the same principles. It also weighs "the ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the requested loan" (B3-3.5-01). The write-offs page explains how that analysis adds some deductions back.
Those are rules for loans sold to Fannie Mae, not rules for every lender. FHA, VA and jumbo programs are separate rulebooks, and I read the one your loan follows before anything is counted. Requirements vary by program and lender.
I just made partner. Do I really need two years of K-1s?
Under Fannie Mae's rule, not necessarily. The K-1 topic carries a written exception, and it is not a waiver of the ownership line: "An exception to the two-year requirement of receiving "guaranteed payments to the partner" applies if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or law firm) after having an established employment history with the partnership." In that case, rather than two years of K-1s, "the lender may rely on the borrower's guaranteed compensation. This must be evidenced by the borrower's partnership agreement and further supported by evidence of current year-to-date income" (B3-3.4-19).
Read the conditions closely, because each one is a document. Nominal ownership: the guide does not define it in figures, so the lender reads your actual share. A professional-services partnership: the guide's own examples are a medical practice and a law firm. An established employment history with that same partnership: your W-2s from the years before the change. Guaranteed compensation: the partnership agreement has to state it, not just describe it, and year-to-date pay has to show it arriving.
The exception is written as an exception to the two-year history for guaranteed payments, not as a waiver of the ownership line, and the guide does not say whether a partner in this position is treated as self-employed for documentation. Whether a lender applies it to your file is that lender's decision, and I ask before you count on it.
Does the income have to actually reach my bank account?
For K-1 income, the lender checks that it does, or that it could. Fannie Mae tells lenders to "use caution when including income that the borrower draws from the borrower's partnership or S corporation as qualifying income." K-1 income "can only be considered if the lender obtains documentation verifying:" "the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or" "the business has adequate liquidity to support the withdrawal of earnings" (B3-3.6-07). A documented, stable history of cash distributions in line with the income used settles the question; without one, the lender reads the business balance sheet and runs a liquidity ratio, with a documented rationale allowed for other methods.
Guaranteed payments are read separately, not as distributions: with a two-year history of receiving them, they "can be added to the borrower's cash flow." Your proportionate share of the partnership's income or loss is taken from your partnership percentage of ending capital on the K-1. Income the partnership retained and never paid you is the part most likely to be questioned, and it is the first thing I look at on the K-1.
What about my W-2 income from the same firm?
It still matters, in two ways. It is the "established employment history with the partnership" the exception asks for, so bring the W-2s. And it is the baseline for a pay-structure check: Fannie Mae's general income rule says that when the lender is notified that a borrower is transitioning to a lower pay structure, it must use the lower income amount in qualifying (B3-3.1-01). A move from salary to guaranteed payments plus distributions is a new structure, and the lender reads it as it is now, not as it was on last year's W-2.
If part of your pay is bonus or stock, the stock compensation hub routes each part to the page that counts it. If you are the firm's majority owner and the returns understate the business, the bank statement loan page covers the documentation route.
What should I have ready?
- The partnership or operating agreement, showing your ownership share, the date you were admitted and any guaranteed compensation, not just the profit share.
- Your personal federal returns for the last two years with every schedule, and the Schedule K-1s you have received.
- W-2s from the years you were an employee of the same firm.
- Year-to-date pay records from the partnership, whether guaranteed payments, draws or distributions, showing the account they land in rather than a summary.
- If your share is at or above the line, the business returns for the last two years, or the firm's balance sheet if distributions have not kept pace with the K-1 income.
- Which state the home is in, whether you will live there, and your monthly debts.
Send documents through the secure process I give you when we talk, not by ordinary text. A conversation does not pull your credit. Buying a home? Get pre-approved once we have talked. The online letter uses a soft credit check and is written for W-2 employees; partnership income needs the review above first, and the letter does not by itself confirm that it qualifies.
The hard-to-qualify hub lists the other income situations I can review.
Questions people ask next
Does getting a K-1 make me self-employed?
Under Fannie Mae's rule, your ownership share decides, not the form. Below a quarter of the business, the K-1 topic applies and the lender uses your proportionate share of the K-1 earnings with two years of returns and K-1s. At or above the line, you are documented as a self-employed borrower with a cash flow analysis of the business.
My K-1 shows income, but I did not take distributions. Does it count?
Only if the lender can verify that the income was actually distributed to you in line with the amount used, or that the business has adequate liquidity to support the withdrawal of earnings. A stable history of cash distributions settles it; otherwise the lender reads the business balance sheet. Retained income is the part most likely to be questioned.
I am a new partner at a medical practice. Can I buy before my first K-1?
Possibly, under Fannie Mae's exception for a borrower who recently acquired nominal ownership in a professional-services partnership after an established employment history there. The lender may rely on your guaranteed compensation rather than a K-1 history, evidenced by the partnership agreement and year-to-date income. Whether a lender applies it to your file is up to the lender, and I ask before you plan around it.
Do FHA and VA loans have the same K-1 rule?
This page restates Fannie Mae's written rules for loans sold to Fannie Mae. FHA and VA are separate rulebooks with their own treatment of partnership and self-employment income, and I read the one your loan follows rather than assume the rules match.
Can I use a bank statement loan instead of my K-1s?
Sometimes, and it is a documentation route rather than a shortcut. A bank statement program reads deposits instead of the net income on returns and sets its own history and ownership rules. I check the standard route first, because it usually costs less, and compare the two on your numbers.
Will asking about this affect my credit score?
No. A text or a call does not pull your credit. An application is a separate step, and I tell you before it happens.
What clients say
Zach was so easy to work with. He made a stressful situation into a very positive experience for us and did push us one way or another. He listened to what we hoped we could accomplish and made it happen.
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Sources and checked dates
Sources: Fannie Mae Selling Guide, B3-3.4-19, Schedule K-1 Income <25% Ownership (checked 2026-10-17) · Fannie Mae Selling Guide, B3-3.6-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1 (checked 2026-10-17) · Fannie Mae Selling Guide, B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower (checked 2026-10-17) · Fannie Mae selling guide, B3-3.5-01, underwriting factors and documentation for a self-employed borrower (checked 2026-09-12) · Fannie Mae selling guide, B3-3.1-01, general income information (checked 2026-09-28).
Show each claim on this page, what it depends on, and the date it was checked (5)
| What we say, and what it depends on | Source | Checked |
|---|---|---|
| Fannie Mae Selling Guide B3-3.4-19, Schedule K-1 Income <25% Ownership (10/07/2026): "The following table provides income requirements for borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC). For borrowers who have more than 25% ownership, lenders must follow the verification of income requirements for self-employed borrowers." "The lender is not required to analyze the viability of the business in accordance with self-employment requirements and may use only the borrower's proportionate share of earnings reflected on Schedule K-1 when calculating the borrower's income." Documentation: "The lender must obtain the most recent two years of:" "signed personal federal income tax returns, and" "IRS Schedule K-1." "Additionally, a verbal VOE is required." Income history: "A minimum two-year history is required." Income continuance: "The lender is not required to verify continuance unless they have reason to believe the income may not continue." "Income reported on Schedule K-1 can only be considered if the lender obtains documentation verifying:" "the income was actually distributed to the borrower and is consistent with the level of business income being used to qualify, or" "the business has adequate liquidity to support the withdrawal of earnings." Guaranteed payments: "If the borrower has a two-year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower's cash flow." "Note: An exception to the two-year requirement of receiving "guaranteed payments to the partner" applies if a borrower has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or law firm) after having an established employment history with the partnership." "In this situation, the lender may rely on the borrower's guaranteed compensation. This must be evidenced by the borrower's partnership agreement and further supported by evidence of current year-to-date income." | Fannie Mae Selling Guide, B3-3.4-19, Schedule K-1 Income <25% Ownership | 2026-10-17 |
| Fannie Mae Selling Guide B3-3.6-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1 (05/07/2025): "The lender must use caution when including income that the borrower draws from the borrower's partnership or S corporation as qualifying income." "If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then no further documentation of access to the income or adequate business liquidity is required." Otherwise the lender confirms the business has adequate liquidity to support the withdrawal of earnings; the topic prints a quick ratio and a current ratio, and says "While a result of one or greater is generally sufficient to confirm adequate business liquidity to support the withdrawal of earnings, lenders may support adequate liquidity using alternative methods with a documented rationale." Documentation: the most recent one or two years of signed individual returns including Schedule K-1, and "the most recent two years of business federal income tax returns (IRS Form 1065 or IRS Form 1120S), unless the requirements to waive business tax returns have been met; or" "the most recent one year of business federal income tax returns," per B3-3.5-01. B3-3.7-01, Analyzing Partnership Returns for a Partnership or LLC (02/07/2024): "The borrower's proportionate share of income or loss is based on the borrower's partnership percentage of Ending Capital in the business as shown on IRS Form 1065, Schedule K-1." | Fannie Mae Selling Guide, B3-3.6-07, Income or Loss Reported on IRS Form 1065 or IRS Form 1120S, Schedule K-1 | 2026-10-17 |
| Fannie Mae Selling Guide B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower (12/13/2023), re-read 2026-10-17: "The lender may verify a self-employed borrower's employment and income by obtaining from the borrower copies of their signed federal income tax returns (both individual returns and in some cases, business returns) that were filed with the IRS for the past two years (with all applicable schedules attached)." Transcripts are an alternative "as long as the information provided is complete and legible and the transcripts include the information from all of the applicable schedules." "Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed." One year of returns is allowed when "the business from which the borrower is using self-employed income must have been in existence for five years as reflected on the Form 1003, and the borrower has had an ownership share of 25% or more for the past five years consecutively," with a cash flow analysis in the file. The lender "may use Cash Flow Analysis (Form 1084), another type of cash flow analysis, or an automated tool such as Fannie Mae-approved vendor tools or the Income Calculator, that apply the same principles as Form 1084." The factors include "the ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the requested loan." A full-text search of the topic on 2026-10-17 for "profit and loss", "P&L", "year-to-date", "audited" and "business bank statement" found no profit-and-loss requirement in this topic. | Fannie Mae Selling Guide, B3-3.5-01, Underwriting Factors and Documentation for a Self-Employed Borrower | 2026-10-17 |
| Fannie Mae treats ownership as the trigger: “any individual who has a 25% or greater ownership interest in a business is considered to be self-employed.” The standard documentation is signed federal income tax returns filed with the IRS for the past two years, with all applicable schedules, or IRS-issued transcripts of those returns. | Fannie Mae selling guide, B3-3.5-01, underwriting factors and documentation for a self-employed borrower | 2026-09-12 |
| Fannie Mae’s general income section says: “If the lender is notified that the borrower is transitioning to a lower pay structure, for example due to pending retirement or a new job, the lender must use the lower income amount in qualifying, and must determine that the lower amount is stable and predictable.” | Fannie Mae selling guide, B3-3.1-01, general income information | 2026-09-28 |
Written for and accountable to: Zach von der Linden, Mortgage broker and Branch Manager, West Capital Lending.
Last updated 2026-10-17.
Verify him: NMLS Consumer Access, ID 1652805 · 66 reviews on Experience.com.
Sources for product claims are listed on this page, with the date each was checked.