Advise Needed from Lenders: Tax Returns Weight on Loan Application

1 Reply

Hi, I'm currently working on my 2014 taxes. This 2014 taxes will be the most complicated one by far, with itemizing RE expenses, etc. I do have an EA doing it, so I'm just trying to plan for 2015, as I plan to purchase another property with a loan.

Question for residential lenders or banks: What part of the income tax returns affect the loan amount application? Does having a low AGI on income tax returns affect the loan amount, or not really?

For example, if I deduct all my rehab expenses as a "repair" and not "improvement", it's well possible that my AGI will be very low, and pay low taxes. This is good for me because I pay less taxes now.

On the other hand, if I tell my EA to expense it as an "improvement", and depreciate rehab over 27.5 years,  it would result me a higher AGI. Not a fan of this, because I pay higher taxes. But will this haunt me when I apply for a residential loan? 

In short, Do AGI's really matter when applying for a residential loan? If not, what part of the tax returns really matter when someone is applying for a loan?

(I do know that DTI, credit score, report, and W2s and paystubs are looked at)

Can some accountant or lender weigh in on this please? Thanks in advance! :)

Depreciation is a non cash expense and is added back to your taxable income for loan qualification. They may look at expenses but that gives them an idea of future expenses but is not a qualifying matter unless expenses are excessive and it matters what they are, if they are likely to be ongoing or if they were incidental in that year. Don't worry about expenses so much as they are already considered arriving at your taxable income. :)

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