Will this be an issue in obtaining a mortgage? Tax return AGI

[Anonymous]

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@Anonymous wrote:

You know that doesn't exactly sound like it makes sense. My 1040 "wages" on the top line are about 10K under my actual pay due to 401k contributions. You wont see those 401k numbers on the tax forms at all, the only place it appears is on the paystubs and on the W-2 under box 12 (description code D). And it's a sizeable amount of money (around 10% of my income). There's no way in the world my income should be considered less because of that, but, if you just use the tax returns, you would not see my actual income. I guess you might have a better idea of it by looking at the Medicare taxed income as nothing is deductible from that, but once again you'd need the W-2 to see that.

It doesn't really make sense unless they are taking your straight gross income per W-2's. I'm guessing that with something like a side business that has lost money you would have to go through some sort of manual underwriting since it's a bit of a judgement call (has it actually cost you out of pocket money, or is it just depreciation etc as people have pointed out).

I also disagree that W-2's are easy to fake, if your company uses one of the bigger companies for payroll processing it would be trivial to verify - and most of those companies file W-2 data electronically with the government as well.

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W-2s are really easy to fake.  The payroll processing companies are under a confidentiality agreement and cannot release any information on individual financial transactions.  And the vast majority of large companies have an internal policy that prohibits giving any information about an employee other than periods of employment with the company and job title.  Besides, I cannot see banks (other than for mortgages) trying to verify this information given the amount of applications they have to process and the rapid credit decision results expected. 

The reason that banks rely on them is because 1) they can often tell by the deductions whether or not the numbers seem legitimate and 2) it makes them feel safe knowing that giving a fake W-2 to obtain credit is a felony.  The amount of money at play with a mortgage can justify the cost of obtaining an IRS transcript, but with credit cards and other lesser loans banks / applicants would just not go for it.

[Greatjoel]

It depends

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@Anonymous wrote:

To answer your question, yes, this will hurt you.  You can not claim expenses and then qualify on non adjusted income.  The fact is that if you had to drive that many miles for a side business that was loosing money, it did reduce your income (unless you were not claiming income legally) becuase you had more expenses than you had income from the side job.  As Dallas is fond of saying, "you can't have your cake and eat it to".

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 It depends on the amount of your loss.  But I have learned from experience that your income is not that much of a factor.  The big killer is your FICO score.  If there is one item that is dragging your score down you can have all the income in the world and it will not help you.  So you really need to get all the factors under control before applying for a loan.  Take it from someone who has been through this process over the last 12 years.

[Anonymous]

Thanks for your input!!!

I went ahead and did the pre-qualification. As you can see in my siggy, all of my scores are above 620. So, this is not an issue. When my LO entered my info into the automated system, I was approved!!! This would be great news if she had used the income from my tax return. But she entered my actual income without the write-offs. I had to write a letter to the UW explaining that I will not be doing this business anymore. My LO says that if the UW approves it, they can go by my actual income and not include the write-offs. I submitted ithe letter yesterday, but I have not heard anything yet. I'll post when I get the answer.

Jelly

[Anonymous]

Yes or No.

If qualifying with only w2 income, then you will not have an issue with the Schedule C losses for your business. Your tax returns serve to validate what you are claiming as income. However, 1040 AGI is critical when using Schedule C income to qualify for the loan.

For w2 earners, AGI often does not reflect actual income and there is no qualifying penalty. Examples of adjustments to w2 income are - retirement plan contributions, dependent care & medical reimbursement accounts, and commuting expenses in certain situations. Consider the fact that a person can have $16-20k retirement contributions, $5k dependent care, and thousands more in flexible spending benefits. These amounts reduce AGI and only appear on the w2.

[Anonymous]

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@Anonymous wrote:

Thanks for your input!!!

I went ahead and did the pre-qualification. As you can see in my siggy, all of my scores are above 620. So, this is not an issue. When my LO entered my info into the automated system, I was approved!!! This would be great news if she had used the income from my tax return. But she entered my actual income without the write-offs. I had to write a letter to the UW explaining that I will not be doing this business anymore. My LO says that if the UW approves it, they can go by my actual income and not include the write-offs. I submitted ithe letter yesterday, but I have not heard anything yet. I'll post when I get the answer.

Jelly

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Good news guys!!!!! I was pre-qualified TODAY!!!!! Yay!!!! My LO contacted the UW, and the UW said that I just needed to get a notarized affadavit stating that I haven't been in business since July 2009 due to an injury and a car accident. This way they can use my actual income and they won't count the losses. I also have to provide proof of the accident, which won't be an issue, as I have pictures and papers of the insurance claim and doctor bills.

I am so excited!!!! I have wanted this for a very long time!! I will begin house hunting next week!! I know that I still have to go through UW, but my goodness, this is a huge breakthrough!! I have truly come a LONG way!! I started out with a 495 FICO score and a BK7. I went through Hurricane Katrina and lost everthing that my daughter and I had. It has been a slow road to recovery, but I hung in there with God's help. You all here have helped me soooooo much. (Your blessings are coming!!!!!) Your advice has proven invaluable!!!!

Send all prayers and good vibes my way!!! I will need all of the help that I can get. I'll keep y'all posted on my progress.

Jelly