There are two expense issues that I have been running into more and more lately, they Car Lease Payments, And Non-Reimbursed Employee Expenses. Both of these expenses can have a major impact on whether or not a Borrower will qualify for a mortgage.
The issue with Car Lease Payments is that there is a common belief that if a Borrower has 10 or less months left on a car payment, that the monthly payment does not have to be counted into the Debt-To-Income Ratio's, this is partially true. While Lenders do not have to count car payment that are within 10 months of being paid off, they do need to continue those payments if the payments are on a leased vehicle. The reason why the monthly payments have to continue to be considered regardless of how many months are left on the lease, is because the Lender has to assume that once the lease period comes to an end, the Borrower is going to have to enter into a new. Just because the contract on the Car Lease has come to an end, does not mean that lease payments will stop, the Borrower will still continue to need transportation. Therefore, the Borrower will either enter into a new lease on another vehicle, or the Borrower will purchase a vehicle, and continue to encore a monthly Car Payments either way.
Non-Reimbursed Employee Expenses are showing up more and more on Tax Returns, and many times they are not known by the Lender until the Mortgage is already into processing. The most common Non-Reimbursed Employee Expense that I run into are those for car expenses. If the employee is on commission, this is a natural question to ask, but if they are not, then most often it is not a question asked by the Loan Officer.
When a Borrower receives W2 Income, the Borrowers is qualified for a Mortgage based on their gross income and not their net income. However, this is not the case if the Borrower takes a deduction on their Tax Returns for Non-Reimbursed Employee Expenses. In the case of Non-Reimbursed Employee Expenses, the Lender will establish a 24 month average of Non-Reimbursed Employee Expenses, and subtract the average monthly amount from the Borrowers, average monthly income. If the Borrower has been declaring Non-reimbursed Employee Expenses for less than 24 months, then the Lender will establish an annualized monthly average for the expenses, and add this amount to the Borrower's monthly debt obligations.
In both the case of Car Lease Payments, And Non-Reimbursed Employee Expenses, these expenses can have a major impact on the Borrower's Debt-To-Income Ratios. A Car Lease Payment will increase the monthly debt, while the Non-Reimbursed Employee Expenses can many times substantially reduce the Borrower's monthly income. In either case the end result is the same, higher Debt-To-Income Ratios that could prevent the Borrower from qualifying for a Mortgage.
These days it is very important to not only know these Guidelines, but even more importantly know what questions to ask, and ask them.
Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org