[Mary Salzer]

The profit and loss is the statement that provides a net amount left over at the end of a month after all business expenses are taken from the business profit. Then at that point they apply all of the household expenses to the remaining amount to determine if you can afford the house, consumer bills (credit cards and autos that the business does not pay), utilities, gas (personal use), groceries, insurance (that the business does not pay), cable, phone, all the things that make up a household.

That is why they are asking for the P&L, to determine at the end of the month is there enough after running the business to run the household. This is not a percentage issue anymore like in front end underwriting, it is what does it cost kind of decisioning. Is there enough after the business is run and then the household bills applied to result in a favorable outcome for the borrower and the lender to compel modification.

So after the business expenses you have the household expenses....that is where the real number crunching occurs. Now the reason that you want a 2 year tax return history is to prove that the one month that you gave them for the P&L is supported as being what the business can consistently bring in as you know one month in a business can be better than the other month and they need to see an average over the year to determine that it is really workable. You should also do the same with household expenses, average them out, if you are in a cold weather area, utility bills are higher in the winter and lower in the summer so you need to have a realistic view of what it takes to run the household every month, not just for that month.

Now is your husband's business a corporation that pays him by a W-2 each year to avoid tax hits....or does he work for an outside party that pays him by W-2 and due to the nature of the business he still is self employed, i.e. sub contractor to framing, electrical....etc....