At times Fannie Mae and Freddie Mac’s automated underwriting system (DU and LP) will calculate that a borrower has good enough credit or enough equity or enough cash reserves where they find this borrower is low risk and therefore only needs to present 1 tax return.

This is very helpful especially if you are a self-employed borrower and have had a great year, but 2 years ago wasn’t as good.

If you know someone who got turned down for having low income when a bank used the “average of the last 2 years,” have them call me for a double check on that. Some banks will ask for 2 years of tax returns even though they don’t have to.