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I want to touch base on something that has been throwing a wedge into many loan applications I see – Unreimbursed employee expenses IRS 2106 in New York.
In years past , if you were a regular W2 employee, we would calculate your income based on your W2’s and paystubs without reviewing your tax returns.
Times have changed!
We now underwrite tax returns for all borrowers. There is a section on your itemized deductions knows as the 2106. As an employee can write off work related expenses that your company doesn’t pay for. Under 2012 standards, we must reduce your income by the amount listed in this section. So , if you made $70,000 but had $8,000 in unreimbursed expenses , we will qualify you at $62,000. For many deals where the debt to income ratio is close, this can be a deal breaker.
In addition, if you have some sort of hobby business that is showing a loss we will reduce that from your income as well. Pay close attention to your tax returns when filing and determine if these paper losses are worth it. If your take a $4000 loss on your side DJ business it could hurt your chances of qualifying for a mortgage.
There are many intricate factors that play a role into your qualifications. That is why it is important that you seek out a true mortgage professional when applying for a mortgage across New York State including Long Island, Westchester, Queens, Brooklyn NY. The average employee at a bank may not be able to troubleshoot your application before it becomes a problem.
Any mortgage company can take your application and quote you a rate, but only the best can shake your hand at closing with confidence. Let us find the loan that is right for you.
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Why is the education deduction under unreimbursed employee expenses held against the applicants when that is an appropriately allowed expense? It doesn’t decrease your income because typically people take out loans for that and I totally understand why the loans would have to be considered in the debt ratio. If you could help me understand, that would be great. Thanks, BExcell
Answer by Jim Barry:
Anything that’s gets included in 2106 unreimbursed expenses is deducted from income. This sections is designed for work related expenses that you don’t get paid for. So if you make $50K but have $3K in work related expenses you are netting $47K.
However, if you could prove to the lender that the item in question is a one time occurrence you may be able to exclude it from calculation.
Education expenses can be reoccurring. An example would be continuing education that many professionals are required to take every year. This would certainly be deducted from your income calculation.
You are making the number one mortgage mistake, you are trying to use common sense. Our industry has lost all sense of that. Our industry is over run by bureaucracy and the rules we live by them are set by them. Although many times I disagree with the rules I must live and work by them. That’s why it’s very important for me to explain and review ahead of time clients situations so that minuscule details don’t disrail their opportunity to obtain a mortgage