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Welcome to the site. I'm PDtax, and can assist.
It sounds like your lender is looking only at W-2 verifiable income for loan requests. A return to more traditional lending after the loan issues of a few years ago is my guess.
So what resort do we have to include my wife's income from self employment
The easiest way to get this bank to look at her income in your loan application is to establish a wage from one or more of her LLC's. The wage moves income to her for loan purposes, and the entity throws the remainder income to her without the self-employment taint.
She already is taking wages and has 1 year of W2
but they want 2 years of W2's
Then one more year should give the bank two years wage history, which more traditional lenders will do.
So wait for the second W2 and submit again
You could produce a year to date wage statement showing higher wage, to be confirmed in January 2014 with a copy of the W-2.
Support that interim wage with copies of the 941's.
That way they should have enough without having to wait until january.
I often write letters for borrowers explaining these issues, but some banks have gone back to older banking ways.
I hope that gives you an option to consider. Thanks from Just Answer. Positive feedback closes out your question. I'm PDtax.