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Hoping someone might be able to shed some light on this - A friend worked with a local, well-regarded lender to get a USDA loan on a home. Pre-qual was fine, offer was made, inspection and appraisal are done and he is three weeks from closing. Apparently the lender called him last night to say that he exceeded the income limit by $700. I've worked with this lender myself and know him to be honest and very ethical, so I'm a little surprised that the process got this far before it was figured out.
I'm pretty certain they're going through the USDA guaranteed loan program, which for two adults provides an adjusted income level of $75,650 for our area. "Adjusted" is not well defined but apparently includes certain household expenses. According to my friend, neither last year, nor the year prior's tax returns showed adjusted income higher than that. His wife was employed but lost her job a few months ago. If it matters, she apparently has not held the job for two years or more, and I believe she was classified as an independent contractor by the employer, so it may have been viewed as self-employment income?
Any ideas how this could have cropped up so "late" in the process and more importantly, how it might be salvaged? My friend is (rightly) frustrated and believes the deal is dead, but I'm hopeful that if he and the lender spend time going line-by-line through tax returns, they might be able to find a way.
He's already given notice to his landlord, and has already paid for home inspection (but apparently not the appraisal), so he's out money and possibly out of a place to live if this falls apart.
USDA uses total household income, whether everyone making money who lives in the house is on the loan or not. They typically use tax returns for this, so in this case, the wife's income is a bit nebulous - - but if the understanding is that she is going to return to the workforce, it's understandable that USDA might think her income would remain static.
Typically, we try to increase income for files, so modification of the 2014 return (reducing write-offs to increase net income/bite the bullet and pay the resultant increase in tax) won't work. And I'd feel a little slimy encouraging clients to increase write-offs to qualify.
Tough to tell how the tax returns were inspected. These days a lot of lenders scan them into LoanBeam, and the quotient is what it is. Your notion of a more thorough inspection of "where it hurts" in the returns is spot-on. This is close enough to figure out, I'd think.
USDA uses total household income, whether everyone making money who lives in the house is on the loan or not. They typically use tax returns for this, so in this case, the wife's income is a bit nebulous - - but if the understanding is that she is going to return to the workforce, it's understandable that USDA might think her income would remain static.
Typically, we try to increase income for files, so modification of the 2014 return (reducing write-offs to increase net income/bite the bullet and pay the resultant increase in tax) won't work. And I'd feel a little slimy encouraging clients to increase write-offs to qualify.
Tough to tell how the tax returns were inspected. These days a lot of lenders scan them into LoanBeam, and the quotient is what it is. Your notion of a more thorough inspection of "where it hurts" in the returns is spot-on. This is close enough to figure out, I'd think.
You sure she's not pregnant?
Thank you very much for the response! I am uncomfortable getting too many financial details, but I feel bad since I recommended the lender and suggested the USDA loan option.
We did use the calculator, and as you say, they are in the ironic position of (apparently) needing to show less income as opposed to more, although with what he told me, they do qualify (by about a $500 margin) for the loan. Given the variability of the spouse's income over the past two years, I'm thinking there may be some wiggle room there.
With it only being $700 over the limit, I'm hopeful that they are able to find a workable solution. He is meeting with the lender today to review everything. I may reach out to the lender as well, but I don't want to put anyone in an awkward position, and I certainly don't want the lender to feel that I'm asking for information that they can't share.
I suggested the pregnancy (or adoption) option and he laughed, so that's not going to happen but was actually helpful to lighten the mood a bit.
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