By Tammy Engel
Mortgage Advisor
Think twice before you file
Mortgage Matters
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Do you plan to participate in the real estate market this year? Have you not yet made your appointment with your tax man? Your delay may be to your advantage if you are self-employed and have choices about how much to write off in expenses for your year 2014 returns.
Before you try to beat Uncle Sam by showing as little income as possible, consider that if you want to invest in real estate that tactic may work against you. Know that your mortgage advisor takes the bottom line (net) figure from your last two tax returns in calculating your income to qualify for a mortgage. Self-employed people often find that the bottom line on their tax returns is less than they made in gross income. Their total earnings as reported to the IRS may actually be a negative number after expenses have been figured in.
Negative income? When you consider that the object is to minimize your tax payments by minimizing your reported income, it makes perfect sense. When applying for a loan, however, that can be bad news. Think this through before you make a final decision about what to claim and consider whether that bottom-line number would help or hinder you in your home loan transaction.
Gone are the days of “stated income” loans, when tax returns were disregarded. In today’s mortgage environment, every piece of documentation is scrutinized. Lenders are even contacting the IRS to be sure the tax return copies you submit with your loan application match the figures you submitted to the government when you filed.
Some may try the strategy of refilling prior year returns to show more income for qualifying for a mortgage. While there may be lenders that would approve such an approach, be aware that underwriters are not likely to go for it. So if your business has not showed sufficient income in the past two years to qualify for a loan, you may need to wait for future year’s filings to show the appropriate documentation for a mortgage approval.
All of the above also relates to any expenses you write off as “unreimbursed employee expenses”, like uniforms, union dues, or business travel. If you write it off, we deduct it from your qualifying income.
For a professional opinion before you file, meet with your mortgage advisor. In reviewing your prior filings, we can calculate what you’d need as a bottom line for 2014 if you want to qualify for financing. Then you can make an informed decision about how to file, whether that be to avoid taxes or to become a home owner.
Tammy Engel is your local Mortgage Advisor, and is the only lender in Kern County authorized to display the Lending Integrity Seal of Approval. Contact her at 661/822-7325 with your home loan questions about purchase, refinance, or reverse.
Tammy Engel is your local Mortgage Advisor, and is the only lender in Kern County authorized to display the Lending Integrity Seal of Approval. Contact her at 661/822-7325 with your home loan questions about purchase, refinance, or reverse.
