What is the primary reason for including both last year’s tax return and YTD pay in self-employment calculation?

The primary reason for including both last year’s tax return and year-to-date (YTD) pay in self-employment calculations is to ensure stability and continuity of income.

By analyzing the tax return from the previous year, lenders can assess the self-employed individual's income over a full year, which reflects the business's performance and profitability. The YTD pay provides insight into the current income trend and can highlight any changes in revenue that may not be apparent from the annual tax return alone.

This combination helps to paint a more comprehensive picture of the individual’s financial stability, allowing lenders to evaluate not only what has been earned historically but also what is currently being earned. An understanding of consistent income over time allows for better risk assessment and confidence in the borrower's ability to repay loans based on reliable income patterns.