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The absudity of it all.

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Kevin Mc

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Elite Member
Joined
Jun 7, 2004
Professional Status
Certified Residential Appraiser
State
New York
Talked this evening to a local MB. He has a purchaser attempting to buy a 1.2 million home. $600K down payment, impeccable credit, self employed so he must go stated. He cannot get this person a loan. He has another purchaser, marginal credit, 3% down and he can get this person full doc FHA loan of 97% of the purchase price. something is very wrong out there.
 

LordofTexas

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Joined
Feb 21, 2008
Professional Status
Certified Residential Appraiser
State
Texas
Yep, verifiable income and that darn tax man.
 

Tim Hicks (Texas)

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Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
Impeccable credit and tax documents and he has a loan. The reason stated income loans are no longer good is because too many over-stated and got foreclosed.
 

timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
Talked this evening to a local MB. He has a purchaser attempting to buy a 1.2 million home. $600K down payment, impeccable credit, self employed so he must go stated. He cannot get this person a loan. He has another purchaser, marginal credit, 3% down and he can get this person full doc FHA loan of 97% of the purchase price. something is very wrong out there.

He is obviously a tax cheat or is willing to commit loan fraud if he cannot provide documentation of his stated income, so I am glad that he cannot get a loan. Besides, I am sure some hard money lender will make that loan in about 2 seconds......he will just have to pay an exorbitant interest rate....that's what he gets for being a cheater.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
It is the obligation of every American to write off as many of their legitimate expenses as possible. Tax returns do not tell the whole story.

Let's say my brother works a corporate job and I work as an appraiser and we both gross $75,000 a year, file jointly with our stay at home wives, and we both drive on average 60 miles a day 240 days a year for work (nearly 15,000 miles). Let's say he buys a computer to help him with work at home, and I buy a computer for work, he has broadband internet access at home for $50/month at home, and so do I but it is for my home office. He pays $2,000 in a wardrobe each year and I pay $500 in embossed shirts. He pays 7.5% towards SS and so do I. His money does not go through his own corporation, my money does, and we both rent instead of own.

Our expenses are the same, or nearly since he has to buy suits and pays more for clothes. Yet he gets $0 to write off, but I get $8,352 for my miles, $5,625 for my companies side of SS, $1,100 for the shirts and internet and then $2,000 for the computer. Paradoxically, even though he has less money in his pocket, his top line that qualifies him for a mortgage is $75,000, while mine is $57,923.

As you see, that $57,923 understates my income relative to his. If it were stated fairly I'd be able to show the same income of $75,000 as he can when it comes to qualifying for house - in fact, I should be able to show more because his $75,000 is taxed at 25% reducing his take home pay to $56,250 while my tax bracket is 15%. I am effectively making $63,750 to his $56,250. Yet he can show $75,000 and I can only show $57,923.

That is why when filing an S-Corp the gross of the business less employee pay is the household gross. But the schedule "C" throws qualifiers off and messes things up. It is terrible how much work they make you go through to qualify. Stated was abused, and there and are cheats, but for honest people who know their finances, have good credit, and don't want the headaches, it was a great option.
 
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timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
It is the obligation of every American to write off as many of their legitimate expenses as possible. Tax returns do not tell the whole story.

Let's say my brother works a corporate job and I work as an appraiser and we both gross $75,000 a year, file jointly with our stay at home wives, and we both drive on average 60 miles a day 240 days a year for work (nearly 15,000 miles). Let's say he buys a computer to help him with work at home, and I buy a computer for work, he has broadband internet access at home for $50/month at home, and so do I but it is for my home office. He pays $2,000 in a wardrobe each year and I pay $500 in embossed shirts. He pays 7.5% towards SS and so do I. His money does not go through his own corporation, my money does, and we both rent instead of own.

Our expenses are the same, or nearly since he has to buy suits and pays more for clothes. Yet he gets $0 to write off, but I get $8,352 for my miles, $5,625 for my companies side of SS, $1,100 for the shirts and internet and then $2,000 for the computer. Paradoxically, even though he has less money in his pocket, his top line that qualifies him for a mortgage is $75,000, while mine is $57,923.

As you see, that $57,923 understates my income relative to his. If it were stated fairly I'd be able to show the same income of $75,000 as he can when it comes to qualifying for house - in fact, I should be able to show more because his $75,000 is taxed at 25% reducing his take home pay to $56,250 while my tax bracket is 15%. I am effectively making $63,750 to his $56,250. Yet he can show $75,000 and I can only show $57,923.

That is why when filing an S-Corp the gross of the business less employee pay is the household gross. But the schedule "C" throws qualifiers off and messes things up. It is terrible how much work they make you go through to qualify. Stated was abused, and there and are cheats, but for honest people who know their finances, have good credit, and don't want the headaches, it was a great option.

We can all come up with scenarios for any underwriting guidelines that would show that there is no perfect system that will treat all prospective buyers fairly. That being said, we all know that 99% of the time, stated income loans were used by tax cheats and people committing mortgage fraud to obtain loans that they could not really afford. The solution to your scenario above is not less documentation, but is more documentation explaining what the tax dedcutions were for and common sense underwriting by lenders. The fact is that the default rate for self employed borrowers far exceeds that of typically employed borrrowers, so if underwriting guidelines end up being tighter for self employed borrowers, that is a good thing.
 

LordofTexas

Member
Joined
Feb 21, 2008
Professional Status
Certified Residential Appraiser
State
Texas
Didn't I say that all in one sentence? Edumacated folk, gotta splain more I guess.
 

c w d

Senior Member
Joined
Oct 2, 2006
Professional Status
General Public
State
Florida
The reason stated income loans are no longer good is because too many over-stated and got foreclosed.

Tim, allow me to paraphrase.......

"The reason stated income loans are no longer good is because they never were."
 

RSW

Elite Member
Joined
Feb 18, 2002
Professional Status
Certified Residential Appraiser
State
Tennessee
It is the obligation of every American to write off as many of their legitimate expenses as possible. Tax returns do not tell the whole story.

Let's say my brother works a corporate job and I work as an appraiser and we both gross $75,000 a year, file jointly with our stay at home wives, and we both drive on average 60 miles a day 240 days a year for work (nearly 15,000 miles). Let's say he buys a computer to help him with work at home, and I buy a computer for work, he has broadband internet access at home for $50/month at home, and so do I but it is for my home office. He pays $2,000 in a wardrobe each year and I pay $500 in embossed shirts. He pays 7.5% towards SS and so do I. His money does not go through his own corporation, my money does, and we both rent instead of own.

Our expenses are the same, or nearly since he has to buy suits and pays more for clothes. Yet he gets $0 to write off, but I get $8,352 for my miles, $5,625 for my companies side of SS, $1,100 for the shirts and internet and then $2,000 for the computer. Paradoxically, even though he has less money in his pocket, his top line that qualifies him for a mortgage is $75,000, while mine is $57,923.

As you see, that $57,923 understates my income relative to his. If it were stated fairly I'd be able to show the same income of $75,000 as he can when it comes to qualifying for house - in fact, I should be able to show more because his $75,000 is taxed at 25% reducing his take home pay to $56,250 while my tax bracket is 15%. I am effectively making $63,750 to his $56,250. Yet he can show $75,000 and I can only show $57,923.

That is why when filing an S-Corp the gross of the business less employee pay is the household gross. But the schedule "C" throws qualifiers off and messes things up. It is terrible how much work they make you go through to qualify. Stated was abused, and there and are cheats, but for honest people who know their finances, have good credit, and don't want the headaches, it was a great option.



You forgot to deduct the taxes you would have to pay on your adjusted gross income of $57,923. You are not comparing apples to apples. You deducted his taxes but you did not deduct your taxes, only your deductible expenses. Take that 15% ($8,688.) off of the $57,923 and you get $49,235. Now, compare that to his $56,250.
 

Ken B

Elite Member
Joined
Feb 18, 2004
Professional Status
Certified General Appraiser
State
Florida
I got a stated income loan from Wells Fargo a few months ago with 10% down. Rate was slightly below market with a 30-year term and no balloon and I paid a quarter point up front to avoid PMI. I don't know if they still offer the program or not. I think it may have been a portfolio loan. It helped that both my wife and I have FICO scores in the 760+ range. Yeah, I'm bragging.

:)
 
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