I have too high of a DTI to qualify for a sub 3% home mortgage loan. one reason my ratio is high is that I own a few rental properties and I am self employed. I have a good CPA and he uses all write-offs allowed to keep my taxable income low. Looks like I need about 700/mo additional income (or debt reduction) to qualify. My son advised me to file taxes, leaving off legitimate deductions, get the mortgage and then file an amended return with full deductions. I don’t like this idea as I fear triggering an audit. My mortgage broker suggested I “get rid of” my two auto leases. Seems the DTI limits on low interest loans is pretty strict. Any ideas on what I should do?
It sounds like your rental properties are lowering your ability to qualify for the mortgage rather than your leases.
Have you talked to your cpa about your son’s suggestion?
When I purchased my last home and had to provide taxes, they asked for more than one year, so I don’t think filing and amending will help you that much.
What is your DTI and middle credit score? Usually a DTI would disqualify you from borrowing, while a sub par FICO would ding your rate.
This is the best suggestion. Internet strangers are just guessing without the specifics your cpa has.
With what we have here, I’d get rid of (or drastically reduce the monthly outflow from) the leases before relying on amended tax returns, irrespective of audit concerns. And going forward maybe lighten up on the deductions just a bit to show a little more income.
And there are a dozen ways I can imagine with specifics, this isn’t the best advice.
Yes, they average your last two years. My income was lower last year, but will be up about 25% this year. We could pay off my wife’s lease now, but I understand it may still show as a liability until the lease expires. We could sell it and pay off the entire residual and buy her a car for cash. She has had her Camry for 12 months and due to a knee injury only has 6500 miles on it. It is a 36 month 36K mile lease with 24 months left. I will probably not “fiddle” with my taxes as I enjoy sleeping at night. We are getting ready to sell a large house and downsize. My wife will get social security in 12 months and if we waited a year to sell, we could probably qualify then, especially if we sell her Camry. I am concerned that since I don’t understand leases well, and due to CV-19, we have to make an appointment for a title transfer and it takes 3 weeks to get in, not sure how we could work that out with a buyer.
High 700-Low 800. I assumed the dti requirement might be stricter since we are trying for a 3% rate. We will be putting 230K down on a 330K-350K home. Our new payment will be about 40% lower than our existing payment and we have zero late pays on our existing mortgage.
We are working with First Option Mortgage. perhaps we need a different lender
Yeah I’d shop that and find a better loan officer to work with. With those numbers (notwithstanding your DTI, which you have not shared) you should be lower than 3%. (Assuming this note is for primary or secondary home, of course.)
My broker did not tell me my dti, just that i needed another 800/mo income. I will get my dti from him so I can shop other lenders. My son is a Realtor and has given this broker a ton of loans. I think however, he works for a franchisee of a self funded lender with limited product lines.
I probably need to look for a more versatile mortgage broker.
I would strongly advise not to leave off the deductions and then re file your taxes. While technically correct, you have to state the reason you are filing a 1040X - and restating Income to pass underwriting could be considered fraud. Your CPA would be risking his license to advise otherwise. They likely are looking at gross income vs net anyway, so likely wouldn’t help. Underwriting will estimate/normalize expenses even if they were understated on a tax return. Sell the lease if it’s above water and you aren’t using it. Helps the ratio and your balance sheet.
You have a good cpa and a few rental properties and you are coming to this forum to ask what you should do?? Call your cpa for advice. Why bother with a forum of non cpas?
My questions are relative to possibly getting rid of two leases to increase my income. That is why I ask on this forum. CPA,s are not experts on auto leases.
Thanks for the good advice Drose. This is what I will do along with learning how to calculate my dti and searching for a more flexible mortgage lender.
Yeah, something seems off here. I would definitely get a second opinion. Are you selling or renting out your current house when you move? Make sure that the bank is aware of any rental income or that you’re selling your current residence when calculating DTI.
Did your income drastically fall recently?
FYI: Paying off the balance won’t help, I inquired about that since I had a lease with like 3 payments of $159/mo left when I was buying, and they said they won’t get rid of it even if you pay it off because they are assuming you will lease something else.
Also, you either need $700 more income or $350 in debt reduction. Max DTI is typically 50% for owner occupied conforming loans. Make sure all of your rental income is counted.
Don’t file an incorrect tax return and amend. It’s fraud and not worth the risk. If your CPA even considers this, you should switch CPAs. Plus, you’ve posted the idea on a public forum so it’s easy to prove intent.
Also, a CPA has no idea on how to qualify for a mortgage. Even though they’re supposed to be following “standard” Freddie and Fannie guidelines, every lender has a different way of interpreting those guidelines…particularly around self employment and rental properties.
It is correct that paying the remaining lease payments doesn’t remove the payments from your credit report. If you can sell one of the cars for more than the payoff value, that might be worth considering.
But your best route is to pay off one of your investment mortgages and put a smaller down payment on your new owner occupied home. There is no reason to put 60% down on an OO home when rates are below 3%. Unless each investment property is worth more than the OO property you’re about to buy, it sounds like you have the cash to pay off one of the loans which should sufficiently reduce your DTI. The rate on an OO property will almost always be lower than the rate on an investment property. And you’re well below the OO deduction limits under the new tax code.
I went through them all. Self employment, home buying, even IRS audit which went very smooth. I had to pay off the remaining lease balance to make DTI work and that will be my advice. But considering how low your mortgage is and income properties generating income, I’m not sure why it wouldn’t work out.
Oh yeah… if you use your car to write off, you can deduct that from your debt calculation.
Not all lease companies effectively “close” the note and allow the removal of that debt from the DTI view.
Paying off a lease does not guarantee that. I paid off 2 leases this year. One was through Ally and the other through Chase.
Ally effectively closed it and it no longer showed up as debt. Chase did not and it remained as part of the equation.
I just went through this with my brother. Mortgage was only going to be 50% of the home’s value, so I couldn’t understand why a bank would scoff at that for any reason. He tried directly with 2 lenders who said no. I referred him to a broker who said “no problem!” So I agree with the other who said get another opinion.
You might need to hunt for/network your way to an investor-friendly mortgage person who can use a higher amount of your rental income towards your DTI. Most LOs/mortgage companies aren’t investor friendly and have guidelines meaningfully stricter than Fannie Mae/Freddie Mac standards
sometimes they’re delayed to report, I’ve had leases 4-6 months behind on reports which later cough up to a standard 1-3 months behind.
If you’re not using the Camry much, why dont you try to sell it to Vroom, Carvanna etc.