Last year at this time a client of mine who’s family was growing wanted to purchase a bigger home. This client was a business owner and like every dutiful business owner should do he wrote off every expense he could to limit his tax liability. The net result was that he successfully lowered the amount of taxes he paid but in the process disqualified himself for the loan he needed to purchase the next home. This is because we must use the bottom-line taxable income on the Schedule C every business owner files as a starting point for qualifying income.
When I told him he wouldn’t qualify based upon his “usable” income he offered to re-file his taxes and write off less expenses to increase his qualifying income. Now on the surface there is nothing wrong with this. People file amended tax returns all the time. But this is done to recapture over-paid taxes or amend a mistake one a previous return. What he learned the hard way was that lenders will not allow amended returns when the intended purpose is to qualify for a home loan. In short, no strategic tax filing allowed. This meant he had to wait a year before qualifying for a loan.
Now I don’t agree with this rule because banks will allow people to manipulate other areas of their income and/or taxes to maximize purchase price. For example, someone can change the withholding allowance on their pay stub to increase their take-home pay. And in the example above where my client was willing to re-file he would’ve had to pay more taxes on the amended return.
Unfortunately, we aren’t in control of lending guidelines so until the banks see the light or I’m in charge contact me by clicking on my name below. That way we can game-plan the best way to maximize your income now BEFORE you file for 2014.
Helping You Help Me Help You