The Wage Earner Home Buyer with the Side Business (Self Employed) - Beware
I often take things in this business for granted, thinking most professionals know what is going on in the mortgage market. Maybe I should have shared about this months ago. I guess better late than never.
If you have been paying attention to the documents buyers must offer up to lenders these days, you'll know that most often tax returns (1040's) are required, even for those earning income solely as a wage earner (hourly/salary type position). In the past a mortgage was approved solely on income derived from a borrower's W2's and pay stubs. Lenders did not request tax returns.
These days lenders/investors are pulling 4506's on everyone. A 4506 (4506t) is the form a borrower signs that allows the lender to pull their tax returns. In the past, a wage earner would qualify solely on their "wage earner income"; that is, their pay from their full-time job, derived from pay stubs and W2's. Self employment income was ignored!
As tax returns are pulled on all borrowers, we find that a wage earner may not qualify for a loan if he or she has write-offs from a side business or self-employed business. And we know how self-employed individuals like to write off everything from the new snow tires to the dog and cat (certainly paid employees ... no?)
So if you or someone you know has a solid job with solid pay, and is looking for a home loan, but have a side business - BEWARE. Those write-offs that saved you a buck yesterday can rear their ugly head to deny you a loan today.
(AR Members you can read this article which inspired my blog here.)
Steve Kappre is a mortgage loan officer in New Jersey with Treasury Mortgage, a subsidiary of Aurora Financial Group. For more info check out:
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