How do lenders calculate income for self-employed borrowers using tax returns in Washington?

For self-employed buyers using standard documentation, lenders typically average two years of adjusted gross income from personal returns, add back non-cash deductions (depreciation, depletion, amortization), and may include or exclude business income depending on the ownership percentage and whether the business shows sufficient cash flow to sustain it. If your most recent year's income is significantly lower than the prior year, lenders may use only the lower figure or decline to average. Declining income trends are a red flag — stable or growing income is what underwriters want to see.