Posted on: 03rd Dec, 2009 09:05 am
To what capacity is the income on a tax form used in the loan approval process. Essentially we are looking to be approved for a loan over the next couple months and I have flexibility on how I file my 2009 taxes which will be used for final approval in our 2010 loan. In the past I have written off a bunch of employer expenses (no I'm not self employed) and this has knocked off 20-30% of my taxable income. Our situation is such that our gross income puts us where we want to be for approval amount - but our TAXABLE income is much less. I would be willing to sacrifice some tax returns for this year if it meant getting a better loan. Does this make sense? Of course I can't change my 2008 taxes, but I have the power to decided on how I go about the 2009 taxes.
In our case, the items we write off are things like home office, etc which are more convenient write offs than anything else.
Thanks!!
In our case, the items we write off are things like home office, etc which are more convenient write offs than anything else.
Thanks!!
By all means do not report any, or, as little as possible business write offs on the 2009 tax return.
You may have to additionally, as part of the mortgage process, write a letter of explanation as to why business expenses are so much less in 2009 than they were in 2008 (one time start up costs etc.)
You may have to additionally, as part of the mortgage process, write a letter of explanation as to why business expenses are so much less in 2009 than they were in 2008 (one time start up costs etc.)
I'm actually not referring to Schedule C business write-offs for self employment, I'm referring to Schedule A (Itemized Expenses). The largest chunk for us comes from "Unreimbursed Employee Business Expenses"
thanks for the help!
thanks for the help!
I am referring to Schedule A also.
Lenders subtract Schedule A business expenses from W2 income. If that was not the case, you would not have a reason to ask your question in the first place.
It is a good question. If you want higher income usable for your purchase, report fewer or no business expenses in 2009 and, once again, be prepared to explain why business expenses dropped so much so the higher income can be used. If you can not explain satisfactorily why business expenses dropped so much, the mortgage underwriter has the authority to not accept the explanation.
If you do not need the higher income, go ahead and report the business expenses.
Lenders subtract Schedule A business expenses from W2 income. If that was not the case, you would not have a reason to ask your question in the first place.
It is a good question. If you want higher income usable for your purchase, report fewer or no business expenses in 2009 and, once again, be prepared to explain why business expenses dropped so much so the higher income can be used. If you can not explain satisfactorily why business expenses dropped so much, the mortgage underwriter has the authority to not accept the explanation.
If you do not need the higher income, go ahead and report the business expenses.
but of course, if the loan for which you plan to apply won't require you to pony up your tax returns, you'll be in wonderful shape no matter what.
john's right on the money, however, as to how to deal with the possibility that they'll question your writeoffs in 2008.
john's right on the money, however, as to how to deal with the possibility that they'll question your writeoffs in 2008.
Thanks for the clarity!
I would presume that it'd be pretty standard for an FHA loan to require viewing of tax returns? I presume not providing them is an exception to the rule?
thx
I would presume that it'd be pretty standard for an FHA loan to require viewing of tax returns? I presume not providing them is an exception to the rule?
thx
with automated underwriting, you'll find less likelihood of tax returns being requested. the program you're applying for specifically will usually be the guide - but if you're talking about a normal, everyday fha loan, chances are (johnny mathis) that you'll not be troubled for your returns.
oh, and i sure hope that johnny mathis is not an obscure reference these days.
i'm sure its not obscure among you old timers :-)
George is correct in that the likelihood you would NOT have to provide tax returns is pretty good.
However, there is a Catch 22 there. While you "may" not have to provide tax returns up front as part of the mortgage process, most every lender will require you to sign IRS Form 4506-T and that allows them to get transcripts of your last two years tax returns and then it will stick out like a sore thumb. Getting the tax transcripts is now or will be mandatory soon as part of the mortgage process and even if you get all the way to closing, after closing a lender may check and after closing is not the time to have a problem.
One of the purposes of getting transcripts of tax returns is to allow lenders to catch things that borrowers may be "hiding". You would not be hiding business expenses from the IRS, you would be hiding them from the underwriter by providing pay stubs and W2s to verify income and not tax returns. However, plan on your tax returns being seen---one way or another.
However, there is a Catch 22 there. While you "may" not have to provide tax returns up front as part of the mortgage process, most every lender will require you to sign IRS Form 4506-T and that allows them to get transcripts of your last two years tax returns and then it will stick out like a sore thumb. Getting the tax transcripts is now or will be mandatory soon as part of the mortgage process and even if you get all the way to closing, after closing a lender may check and after closing is not the time to have a problem.
One of the purposes of getting transcripts of tax returns is to allow lenders to catch things that borrowers may be "hiding". You would not be hiding business expenses from the IRS, you would be hiding them from the underwriter by providing pay stubs and W2s to verify income and not tax returns. However, plan on your tax returns being seen---one way or another.
and john, in turn, is correct about the 4506-T getting filed.
what we cannot be sure of (i think) is how a lender or investor is going to treat your situation if they acquire the transcripts after closing and get scared. it may be that they'll simply make the loan unmarketable and return it to the originating lender. that might not give you nightmares, but it sure isn't a pretty situation for all concerned.
of course, if they exercise the 4506-T prior to closing, that could mean a very annoying situation for you as you'd have to be re-underwritten and that might mean trouble.
what we cannot be sure of (i think) is how a lender or investor is going to treat your situation if they acquire the transcripts after closing and get scared. it may be that they'll simply make the loan unmarketable and return it to the originating lender. that might not give you nightmares, but it sure isn't a pretty situation for all concerned.
of course, if they exercise the 4506-T prior to closing, that could mean a very annoying situation for you as you'd have to be re-underwritten and that might mean trouble.