Car Lease Payments, And Non-Reimbursed Employee Expenses

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

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 gsouto@mccuemortgage.com

Posted by

******************************************************************************

 

 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Old Saybrook, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or souto@snet.net

close

Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Gary L. Waters Broker Associate, Bucci Realty 12/19/2012 09:37 PM
  2. Susan Haughton 12/19/2012 09:45 PM
Topic:
Lending / Financial
Location:
Connecticut
Groups:
Realtors®
Mortgages
1st Time Buyers
Real Estate Rookie
Be The Best In Your Field
Tags:
debttoincome ratios

Spam prevention
Show All Comments
Rainmaker
2,170,340
Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Excellant explanation on both of these issues. It make it easier to take an application knowing what to do with expenses.

Dec 19, 2012 06:11 PM #1
Rainmaker
430,916
Frances C. Rokicki
Fran Rokicki Realty, LLC - Bolton, CT
Broker-Mentor,CRS

George, Thank you.  This post makes us understand where these underwriters are coming from, some of the time;)  The lease explanation, just makes sense.  What happens when it ends?  I purchased my car at the end of its lease, because it's been a dream to have.  No issues, but, also, no payments.

Dec 19, 2012 08:14 PM #2
Rainmaker
315,878
Frank Laisch
1492 P&C AGENCY, LLC - Orlando, FL
"The Insurance Guy"

George, great explanation on this. especially the difference between a car payment and lease payment.

Dec 19, 2012 08:29 PM #3
Rainmaker
1,474,530
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Excellent information here. I am going to re-post this so it hits my AR blog as well!  Thanks!

Dec 19, 2012 09:35 PM #4
Rainmaker
1,341,817
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, excellent explanation! I'm sure a lot of buyers aren't aware of this. Thanks.

Dec 19, 2012 09:59 PM #5
Rainmaker
280,625
Linda Piper
Planatek Financial, Inc. - Ventura, CA

Yes, the unreimbursed expenses catch many people by surprise, and they are much more common than you would think...teachers buy items for their classrooms and are not reimbursed (a sorry state of affairs but a topic for another time), and many people in a salaried management position who do not routine receive reimbursement for business expenses they incur while doing their jobs.  Thank you very much for writing about this George.

Dec 19, 2012 10:38 PM #6
Rainmaker
2,331,260
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

Worthy subject to remind all and explore from time to time...I will add before you have to...you should

Dec 19, 2012 10:52 PM #7
Rainmaker
3,741,048
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, I don't know how loan officers keep up with all these rules!     Good thing I am not buying as I do have a lease car and my accountant would know about the other expenses too!

Dec 19, 2012 11:51 PM #8
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

"many times they are not known by the Lender until the Mortgage is already into processing."

 

?

Dec 20, 2012 01:09 AM #9
Ambassador
3,575,471
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joe yes it does, we don't need those surprises after we are into the process.

France, I have lots of battles with the Underwriters here, but many times they are blamed for things that are out of their control, and they are just following the rules.

Frank thank you.  Many people they are the same but they are not.

Gary thank you for doing that.

Michael you are right, and there are those in this industry that should know but don't

Linda, and the thing is that they don't look at them that way, so when you ask them if they are taking deductions for unreinbursed employee expense, and then the Tax Transcripts come in and there they are.  Not a good surprise.

Richie or in this case subtract :)

Joan it is not easy at times, and as much as we try to stay up on the guidelines we still get surprises.

Bill the reason why is that on most loans all you need is the W2's and don't need the Tax Returns.  So if the Borrower tells you that they don't take any deductions for unreinburst employee expenses, but their accountant did, you do not find out about it until the Tax Transcripts (which are ordered on every loan whether we have the Tax Returns or not ) come in from the IRS and BINGO there they are.  Linda in comment #6 gave a couple of good examples on how this happens.

 

 

Dec 20, 2012 03:00 AM #10
Ambassador
2,507,676
Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, before getting into real estate. these were issues I didn't have to address, but dor ecognize then as potential issues that a buyer would need to be veryfamiliar with in order to qualify for a loan.

On another issue, where do I go to lease a car like the one in the photo? Looks like a '36-38 Buick Sport Coupe

Dec 20, 2012 03:55 AM #11
Rainmaker
572,206
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

The reason that a taxpayer takes unreimbursed business expenses as a deduction on their tax return is to reduce their tax expense thus increasing their disposable income after taxes. If an underwriter deducts the unreimbursed business expenses without adjusting for the after tax impact on the borrower’s disposable income the expenses are being overstated.

Dec 20, 2012 07:38 AM #12
Ambassador
3,575,471
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ed, if I find out where they can be leased we will go get one together :)

John it isn't the Underwriter that makes up the rules.  The Underwriters are following the guidelines that are set by the GSE's, and that is the way that they have determined how the deduction will be handled.  They are going to use the reported income as the available income.  Therefore the income is reduced not increased.

Dec 20, 2012 12:09 PM #13
Rainmaker
1,738,681
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, this is great information to share & certainly made me aware of how these expenses are treated for a client when applying for a mortgage...

Dec 20, 2012 07:19 PM #14
Ambassador
3,575,471
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ginny hope fully it will be useful for you with your Buyers.

Dec 22, 2012 09:51 AM #15
Rainer
18,959
Shaida Tafreshi
RPM Mortgage - Los Angeles, CA
RPM Mortgage

thanks!! great and accurate information here! :)

Dec 22, 2012 12:47 PM #16
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?

Ambassador
3,575,471

George Souto

Your Connecticut Mortgage Expert
Call Me With All Mortgage Questions
*
*
*
*
Spam prevention