Posts Tagged ‘qualifying income’

Home Buying Preparations – Income

January 5, 2016

blog-author-clayjeffreys3

Welcome 2016! This time of year, people are busy making new year’s resolutions. Popular resolutions are losing weight, eating healthier, saving money, quit smoking, travel, spend more time with family… all of these have one thing in common. If you don’t have a plan, you won’t succeed. For example, no one would make the goal of exercising more on January 1st, and then run a marathon on January 2nd!

Buying a home involves a very similar process. You don’t just find a house and make an offer on it. You need a plan. You need to make sure your financial “house” is in order. Otherwise, you could be wasting time and risking your hard earned Earnest Money. Over the next few weeks, this blog will focus on three main aspects of preparing to buy a home through the prequalification process. Those aspects include income, credit, and assets for the down payment.

This week, we’ll focus on income by linking a few posts my colleague, Rodney Shaffer, wrote toward the end of 2015 in terms of qualifying to buy a home and income. These posts are not all inclusive as income from employment, bonuses, commission, self employed, 1099, child support, alimony, retirement, annuities, trust, disability, social security, tips, part time, asset-based income can be used when buying a home. Covering all of those at once would be an EPIC post, so we’ll stick with some common ones.

Overview – So How Much Money Do You Make

Salary or Hourly – Q: How to you earn? A: Hourly vs Salary

Commission* – Q: How do you earn? A: Commission income

*Note self employed and bonus income documentation is similar to commission with one exception. Self Employed borrowers can get by with only one year of tax returns instead of the two years required of commission and bonus income.

For non-traditional forms of income, such as child support, alimony, retirement, annuities, trust, disability, social security, the main qualifying aspect of these is stability. Currently, income “stability” for these types is considered to be any income stream lasting for 3 years after the closing date. Each one I just mentioned may have one small detail different from another, but the BIG unifying theme in all of these is the three-year continuance.

Don’t see your “type” of income listed? Have questions that aren’t answered? You are in luck. Contact me today, and we can discuss. If you are buying in the state of Georgia, I can help you get prequalified and ready to buy your new home.

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Happy Tax Day: Just Write it Off (Jerry).

April 15, 2010

The mortgage business is actually quite straight-forward.

The underwriters who work in the business and the bankers who control the business of lending people hundreds of thousands of dollars are generally methodical, detail oriented, by-the-book, risk-adverse, kind of people.

In an effort to ditch the stuffy-banker image, six or eight or ten years ago, mortgage brokers started marketing the idea of “creative financing” . . . and “creative financing” was supposed to mean that as a broker, I can do loans that the bank can’t do = stated-income loans, no-doc loans, 80-10-10’s, 100% financing, stated-income stated-asset loans, interest-only loans, etc.  However, too many mortgage professionals (the brokers doing the loans and some of the wholesale account reps whose companies were buying the loans) took the word “creative” to mean something a little (a lot) different.  I know, because I lost the business of a handful of borrowers over the years (13 years, ouch) because I was not willing to be “creative” . . . as in, borrower: “well, can’t you just ignore _____ [this or that].”

The over-creativeness of the mortgage business (by the way, don’t look at me) and the crazy-liberal mortgage underwriting guidelines of the past few years (can you believe there used to be a “stated income W2 loan” available?  The lender realizes that the borrower is W2, but will allow them to state their income for qualifying purposes.  I never did one, but referred to them as the “liar loan”) are in large part to blame for the economic debacle that the U.S. is current experiencing (NOT predatory lending — which is what the media and D.C. may want you to believe).

Uh . . . I thought we were going to talk about tax returns??  Sorry.  Keep reading . . .

So, most people understand that the mortgage underwriting pendulum has swung — guidelines are more strict, lenders are more credit score sensitive, downpayment requirements are higher, etc.  BUT, for some reason, most people are surprised (and often quite angry) to find out that there is NO room for creativity when it comes to tax returns.

Your tax returns are your qualifying income.  End of story.

“Well . . . ,” you ask ” . . . what about write-offs?”

With the exception of depreciating assets (which we can add back to qualifying income) and health insurance costs (which can be added back) and a few other things that can be added back to someone’s income for qualifying purposes— a “write-off” is really just a cost of doing business.  If you were selling widgets and made $100 per widget, but it cost you $25 to make the widget (a $25 loss per $100 made), it wouldn’t be fair for the IRS to tax your income at $100 per widget.  Your income would only be taxed at $75 per widget.

So, if you “write-off” the cost of business travel, food and entertainment, or mileage for work, or advertising costs, website design, etc., those costs are costs of doing business.  In other words, if your business made $80,000 in gross receipts (income), but it cost you $20,000 in business expenses (in write-offs) to make the $80,000 . . . then your qualifying income (the income left-over and available to make the mortgage payment and pay the bills) equals $80,000 — $20,000 = $60,000.  The underwriter determines from your tax returns, that in order for you to make $80,000, you have to spend $20,000.

Now, if you made more than $80,000 OR if you actually spent less than $20,000 . . . well . . . it may be that you or your accountant is . . . well . . . more than simply creative.