Fannie Mae has introduced a new way to represent the actual cash received from a K-1. Because of this, the distribution method was introduced as an option in LoanBeam.
This option is available on partnership and S-Corporation worksheets. It is available as a drop-down.
Should you use Distribution?
You should use distribution if you are following Fannie Mae guidelines.
Freddie Mac, USDA, VA and FHA are not using it.
Some jumbo investors are starting to adopt it.
If you are not sure if you should use it, ask an underwriter manager at your firm to confirm.
How Distribution works:
With the distribution method, the income from lines 1,2,3 is put against the distribution number found on Line 16D for the 1120S and 19a for the 1065.
If the distribution is equal or greater, then the income from lines 1,2,3 will be taken.
If the distribution is lower or not present, then you will have to:
- Verify that the borrower has access to that income
- Verify that the business balance sheet as enough liquidity to cover it.
Using Distribution Method in LoanBeam:
In the LoanBeam output file, simply select the distribution in the method drop-down (see below).