Mid-Credit Score of Borrower and Co-Borrower averaged?

[SelfEmployed75]

So here is another head scratcher...

I asked the LO about paying off a car lease and they said "Yea, but then you have to buy our the car so we still have to count the payment toward the monthly debt." Huh? Why would we have to buy out the car? I said we don't have to buy it out, we could turn it back in, that's how a lease works to which they responded that we would then need to buy another car so we would still have another payment.

How can they make that assumption? They don't know if we do or don't need two cars. They don't know if we could buy a car that is much less per month or maybe even buy a car cash down...how could they force us to buy out the car if we paid off the lease early? Makes no sense.

[SmartMoney]

Once they run you thru the AUS, it's in there, you can't go back and zero out the credit cards. That's why they have to be at zero before the automated approval is run. If you had balances and paid them off, you would need to provide 0 balance receipts and they would have to update the credit prior to running the AUS.

Here are the questions your sister in law, the loan officer wants you to ask (make it sound like you are reporting back - but you really aren't - your just trying to get them to be truthful):

1) Are they running your loan thru DU or DO?
2) What gross monthly income are they using for you - the dollar amount? (this will tell you how far off you are)
3) What are your ratios right now?
4) Have they run the AUS? or are they waiting for ratios to improve before doing so?

The way they are behaving, I suspect they are getting ready to tell you they cannot make the loan work. Otherwise, they would be setting up a time table with you to pay off the accounts, get zero balance statements, and updating the credit report.

Car leases are like credit cards. They have found most consumers in a car lease are always in a car lease. The underwriters just need to be able to apply a reasonable test to your situation regarding the auto lease. Are both cars in the tax return as a business expense? (If so, did they give you back the "add backs" so your lease is not double counted against you) Do both you and your wife work? Kids? Is there reliable public transportation? I'm sorry, but it's a stretch to believe a suburban family decides to live with one auto at the exact time they decide to buy a home. What has been your history of auto ownership?

As for paying more taxes, well, that's always been the hazard of the self employed. The gold standard has always been, your income is what you pay taxes on. There are allowances to add back the non cash items, such as depreciation, but if it costs you $20 to make $100, shouldn't your qualification be based on the $80 you earn? The problem usually occurs when the taxpayer starts writing off everything they possibly can, including the items they would need anyway, even if they were not self employed. So sure, it's a catch 22, pay taxes or don't qualify. But it's just possible you may be reaching too high on this particular home if you must upend your entire financial structure. You probably need to figure out your future finances and then go out house hunting - whether in this price range or another. I'm guessing you went out and fell in love first, before being pequalified, which can be disappointing.

[SelfEmployed75]

First let me say thank you for all the time you're taking to walk me through this. It's been very frustrating, I feel like the things you are helping me with are the things my LO should be helping me with.

You probably saw the other thread I made about the self-employment income. Like I said there, the LO told me that they show $2880 per month as income based on the average of 2010 and 2011 taxes, which is nuts. She also "That, plus the $1300 you are reporting as draw for 2012 gives us $4,180 and we need to be at around $6,700." I asked what DTI we are at, and she said 77%, which again, is nuts because it's not true. She hasn't told me what amount they are using for our monthly debt, but if they are figuring we only make $4180/mo and that's 77% DTI, seems like they are using about $3,220.

They seem very confused on what our income is. I came up with $5,631, which would be a DTI of 57%, still much too high based on the taxes. My suspicion is that they are only counting one of our incomes even though we are both on the loan now because their income figure is just about half of what I come up with. We started the loan trying to qualify just one of us, but they said we needed more income, so we the second person but it's as if they are still only counting 50% of the income.

We have two cars right now, and the lease on one car was actually taken as a 100% business deduction against the business ($8,900 for the year for lease payment, gas and insurance). Should that be added back in as income? They are counting the lease toward personal monthly debt since the car is not leased through the business, so we are getting dinged twice it seems. We also took a mileage deduction on the other vehicle and I'm reading online that it should be added back in? Total ""Auto Expenses" for 2010 and 2011 were $24,143, obviously if we can add all that back in, it would be a huge boost. Again, isn't this something the LO should be questioning us about and trying to get all the facts?

If we could add the auto expense deduction back into our income, that would increase it to $159k for 2 years, or $6,625/month and 48% DTI. There may be other add-backs I don't know about to further increase the income shown. I calculate that they are looking for a 47% DTI based on the information she has give me so far (wants us to show $6,700/mo income and is using $3,215 as monthly debt).

Edit: Found this article that says you can only add back in $0.23/mile for mortgage qualifying purposes. I don't have the figures on hand for exactly how many miles we claimed for 2010 and 2011 but it's around 20,000 miles or $4,600 that we should be able to add back in, plus the $8,900 in lease related items.

And now speaking of taxes, they are willing to wait until we file 2012 and put the loan and lot/house on hold, as long as we file in Jan. but don't they need to request the taxes from the IRS via Form 4056-T? I imagine if we file say Jan 10th, it'll take 4-6 weeks before the IRS has it uploaded in their system and then another week till the lender gets the copies, so now we're looking at March before we could possibly get approved? I mean if they are ok with that, the price is locked in, so we would be ok with it, no rush on our end. though who knows what interest rates are going to do.

I am just about ready to ask for a new loan officer and underwriter, they both seem very inexperienced at this. I actually filled out a Form 1084A with instructions I found online and emailed it to the LO to show how I got the figures I did. I'm sure I'm probably a pain in the butt for them at this point but I don't know what else I can do, something isn't right.

[SmartMoney]

Originally Posted by SelfEmployed75

First let me say thank you for all the time you're taking to walk me through this. It's been very frustrating, I feel like the things you are helping me with are the things my LO should be helping me with.

You probably saw the other thread I made about the self-employment income. Like I said there, the LO told me that they show $2880 per month as income based on the average of 2010 and 2011 taxes, which is nuts. She also "That, plus the $1300 you are reporting as draw for 2012 gives us $4,180 and we need to be at around $6,700." I asked what DTI we are at, and she said 77%, which again, is nuts because it's not true. She hasn't told me what amount they are using for our monthly debt, but if they are figuring we only make $4180/mo and that's 77% DTI, seems like they are using about $3,220.

They seem very confused on what our income is. I came up with $5,631, which would be a DTI of 57%, still much too high based on the taxes. My suspicion is that they are only counting one of our incomes even though we are both on the loan now because their income figure is just about half of what I come up with. We started the loan trying to qualify just one of us, but they said we needed more income, so we the second person but it's as if they are still only counting 50% of the income.

We have two cars right now, and the lease on one car was actually taken as a 100% business deduction against the business ($8,900 for the year for lease payment, gas and insurance). Should that be added back in as income? They are counting the lease toward personal monthly debt since the car is not leased through the business, so we are getting dinged twice it seems. We also took a mileage deduction on the other vehicle and I'm reading online that it should be added back in? Total ""Auto Expenses" for 2010 and 2011 were $24,143, obviously if we can add all that back in, it would be a huge boost. Again, isn't this something the LO should be questioning us about and trying to get all the facts?

If we could add the auto expense deduction back into our income, that would increase it to $159k for 2 years, or $6,625/month and 48% DTI. There may be other add-backs I don't know about to further increase the income shown. I calculate that they are looking for a 47% DTI based on the information she has give me so far (wants us to show $6,700/mo income and is using $3,215 as monthly debt).

Edit: Found this article that says you can only add back in $0.23/mile for mortgage qualifying purposes. I don't have the figures on hand for exactly how many miles we claimed for 2010 and 2011 but it's around 20,000 miles or $4,600 that we should be able to add back in, plus the $8,900 in lease related items.

And now speaking of taxes, they are willing to wait until we file 2012 and put the loan and lot/house on hold, as long as we file in Jan. but don't they need to request the taxes from the IRS via Form 4056-T? I imagine if we file say Jan 10th, it'll take 4-6 weeks before the IRS has it uploaded in their system and then another week till the lender gets the copies, so now we're looking at March before we could possibly get approved? I mean if they are ok with that, the price is locked in, so we would be ok with it, no rush on our end. though who knows what interest rates are going to do.

I am just about ready to ask for a new loan officer and underwriter, they both seem very inexperienced at this. I actually filled out a Form 1084A with instructions I found online and emailed it to the LO to show how I got the figures I did. I'm sure I'm probably a pain in the butt for them at this point but I don't know what else I can do, something isn't right.

Yep, sorry, I haven't been back to the other thread since writing the last two posts. It looks like you answered your own question....you can only add back the depreciation portion of the mileage, which currently is .23 mile - IRS changes that year to year, but it doesn't vary much year to year. I just looked at the other thread, where you say they are getting you to $2880 month. I am also assuming you have 100% ownership interest.

What is the taxable income for each year on the business.......at the very bottom after the the expenses and depreciation? If it's a negative, it should be deducted from your income calculations. If that's not the issue, have they mentioned anything to you about the balance sheet, Schedule L? The reason for the S Corp is to protect your personal finances, but the thinking is if the income is a negative, the business will not sustain itself. Schedule L shows a financial snapshot, the balance sheet with upcoming debt.

Without actually seeing the returns, that's all I can think of.

[SelfEmployed75]

You're talking about the taxable income on line #22 of form 1120S? For year 2011 it's +$40,655 and for 2010 it's +$40,161.

They have not mentioned anything about a balance sheet, schedule L but looking at it, line #27 column D (I assume that's the right column) it shows $1,870 for 2011 and $3,178 for 2010.

And yes, 100% ownership. That is where I think the problem might be. Like I mentioned before, we started out the loan with only one person on it, so 50% of all income shown. Then added the second person and it's almost as if they didn't change the number from 50% to 100% in their system.

[SelfEmployed75]

Going back to the AUS and paying off credit cards from earlier...

If AUS is ran, can it not be ran again if/after you update the credit?

I really hope it can be ran again because paying off the cards and freeing up $190/month in credit card debt means that our income can be lower by almost $10,000 for 2012, which is a big chunk of money due in taxes on that income.

[SelfEmployed75]

Approved! Sort of.

Well, at least that's what I think the LO said from from the phone call I just had. Underwriting took a look at the email I sent over, with the completed Form 1084A (which I guess they were very thankful for me filling out, they said they had never had anyone do that before ). My numbers were all correct and the income now shows as $5800/month, not $2877 that they had figured out.

She then said that we are still a bit too high on our DTI at 59% but if we pay off one of the car leases, it would get us right to 50% where they need to be at. I then asked what happens if we pay off our credit card debt instead (which would free up $200/month). She said that would get us to 55% which is better and said "Well, let me run that through the system and see if it takes it"...two seconds later "Oh wow, it took it!"

I was like "Huh? Come again?"

The system approved the loan at 55% DTI and she said as long as the income doesn't change come time to close in the summer, should be good to go.

She then said the loan is now going back to underwriting to issue approval and that we should be contacted by a loan processor by Monday who will let us know what additional documents may be needed.

So what does this all mean...that we got pre-approval or...?

[SelfEmployed75]

Found out that the loan was ran through DU and came back "Approved/Eligible", so that's good. Going to hold tight and hopefully hear something within the next week.