It is not enough to see the buyer's pay stubs and W-2's to determine if they have enough income to qualify for a Long Island mortgage or a mortgage anywhere in the country. The borrowers' last two years tax returns must be examined as well. First of all, the lender will require that the borrower sign a 4506T form. This authorizes the lender to get a transcript of the borrowers' last two years returns. It is amazing what things on the tax return will disqualify a borrower.
The most common area is deductions. I had one borrower, who a wage earner, claim $12,000 a year in unreimbursed job expenses. That is $1,000 per month. Even though the borrowers had a good income when looking at pay stubs and W-2's, this $1,000 per month deduction completely destroyed the debt to income ratios and the borrower could not qualify. Another borrower, who was supposedly a first time home buyer, claimed a mortgage interest deduction for an out of state property. As it turned out, he had sold the property eight years before but was still claiming the interest deduction. Try explaining that one to a lender.
In my office, it is now a practice to obtain the transcript of the tax returns for the last two years from the IRS before an application will be submitted to a lender. It normally takes 48 hours to obtain the transcript when the 4506T form is submitted. It is better to know right away if the borrower can qualify for a Long Island mortgage or any mortgage in the country.
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