- KNOW what you’re signing- I’m guilty of this myself and so are many of our clients. I hand over all my paperwork to my accountant – let him do the math and sign the returns when done. Sometimes I get a refund, often I owe money. I don’t really know what’s going on with my taxes, I trust my guy. For many of our clients they operate the same way. However, in the year or two leading up to the purchase or refinance of a home, our clients need to know what NET numbers are showing on their taxes. I cannot tell you how many times I talk to clients who are shocked to find out that they think they make $200,000 a year; however, are only showing net income on their tax returns of $72,000 a year. Our clients need to realize that it is this taxable net income that is used for qualifying – not the gross income clients have in mind.
- Beware of 2106 expenses- Hidden on page 2 of a standard tax return is something called 2106 expenses. These are non-reimbursed business expenses. This figure, if present, is deducted dollar-for-dollar from the approved income. So, a teacher who makes $65,000 – yet claims $20,000 in non-reimbursed business expenses such as supplies and training not reimbursed by their employer, will only have net income of $45,000 to go towards the loan approval.
- Change of entity types – Usually clients are looking to buy a home right around the time they start to make more money. Unfortunately, this increase in income usually comes with an accountant who recommends the formation of a new entity [through which our potential buyer is getting paid]. For example, let’s take a self-employed make-up artist who has recently increased her earnings from $75,000 a year to $175,000 a year due to a new show she is working on. This increase in income may simultaneously prompt her to want to buy a house, but may also prompt a change in the nature by which she receives her income. Changing from a Self-employed Schedule C on the tax returns, to a S-corporation with a new pay structure can kill your ability to get the loan done. There are LOTS of solutions and workarounds here, however, like most things, we need some time to plan. We need to get the pre-approvals to your lender early so we can game-plan and work with underwriting on a solution.
- Reviewing draft tax returns – If you don’t know what your signing, that’s what we are here for. My team is happy to review a draft copy of the 2015 tax returns with your clients BEFORE you file with the IRS. This will allow us to review the income, expenses and deductions prior to the final returns being filed.
Real Estate agents are here to help you buy/sell a home. REALTOR teams take it to the next level by assembling professionals to assist you in making wise financial decisions for you and your family. Make sure you surround yourself with a team that understands your needs and will work with you to achieve them.