I know many of you are excited and hoping to purchase a home to this year, and looking forward to conjuring up what additional money you can from your upcoming tax return. WAIT, that’s great but continue reading before you do anything.
It has always been common practice for tax preparers/individuals to write items off on line 21 of their Schedule A more specifically known as “Unreimbursed Employee Expenses” This section is where you might write off things like: job travel, union dues, business lunch, training, uniform etc to increase your return or reduce your tax liability. Mortgage underwriting guidelines dictate that any write-offs found in the column, Line 21 on the Schedule A must now be deducted from actual income. For example, if an individual made $60,000 in 2012 and has $10,000 in unreimbursed expenses for 2011, an underwriter now is only allowed to count $50,000 of income for that year not the entire $60,000. This might not seem that bad, but in reality that borrower just lost a little under $1,000 per month in income in the eyes of the lender and that can be huge depending on your personal circumstances.
As per usual many of the mortgage applications that were submitted last year were denied, due to lack of preparation, and the buyer not being aware of this guideline. Make sure you don’t have the same problem. If you don’t remember anything else, remember this guideline. Don’t accept a preapproval unless your tax returns, including your Schedule A, were reviewed by a mortgage professional. It’s one of the few things you can control regarding your mortgage eligibility. Doing a small amount of preparation work ahead of time can mean the difference between a loan denial and a loan approval. Call me to make an appointment to see what you truly can be preapproved for.