|Avoid these mortgage mistakes when you file 2013 tax return
Pay Uncle Sam and qualify on paper; short Uncle Sam and risk your mortgage loan application. Gambling your financial future by saving a few bucks isn’t worth the risk.
The following are actions that will halt your loan application.
If you are a W-2 employee, then taking expenses you incur in the course of your job as a write off against your taxable income is bad news for your loan. The IRS Form 2106 (unreimbursed business expenses) kills a loan application because it reduces your gross income used in making the loan. If you have things like mileage, dues, office supplies and tools you incur as a bona fide employee, these items are best paid for by your employer. You pay a buck, you’re reimbursed a buck, dollar for dollar, on each expense. Hence, no reason to write it off…right? Lenders will always want your two most recent years income tax returns.
If you are self-employed, then writing off as much expenses as possible will do wonders for your tax situation because it will show low income figures and or net losses. This comes at a cost…that’s right, your loan application. The relationship between the total income and other liabilities is extremely important for lenders when determining whether or not to make your mortgage loan. Showing less income to offset a housing payment spells bad news for any self employed consumer seeking home loan financing.
It gets more technical for self employed individuals, as loan lenders use a 24-month average income. In other words, if you show high income one year and low income another year, the lower incomes returns will be counted, which would reduce income. To offset the numbers, you would have to show double-profits in taxable calendar year.
If you own rental property, then not claiming rental property on a Schedule E when the property truly is rental property is hot lending issue. If you don’t claim the rental property as such, nor take depreciation and omit rental income, this also creates red flag for lending purposes. Why? For starters, it raises occupancy questions, which is a risk characteristic of every mortgage application.
If you have rental property, but somebody else makes the mortgage payment and you give them the mortgage interest deduction that you otherwise are entitled to, the lender will want a detailed explanation and liability still remains as yours.
Scott Sheldon is a local mortgage lender, with over six years of experience helping people purchase and refinance primary residences, second homes and investment properties. Visit him at www.sonomacountymortgages.com.