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neversaynever
1044 Posts |
 Posted - 04/09/2008 : 6:05:26 PM
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An LO here has an approval with DU findings, but we are not sure what Underwriting will use as income.
Borrower owns business for 7 years, findings said we only need to use personal taxes for 2 years if income shows increasing. Ok well it does thats fine, but o his personal in 06 it showed a 24k rental loss. Now the properties are rented out and thats no problem, but will a UW just take the average of the business income from the K-1 or do we need to average in the rental loss, even though the properties are currently rented out? |
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terry_g
396 Posts |
Posted - 04/09/2008 : 6:08:22 PM
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They are referring to the business income (via K-1 and 1120's). The schedule E will reconcile to your cash flow shown on your real estate schedule. They want to be sure the business income is not declining.
quote:
Originally posted by neversaynever
An LO here has an approval with DU findings, but we are not sure what Underwriting will use as income.
Borrower owns business for 7 years, findings said we only need to use personal taxes for 2 years if income shows increasing. Ok well it does thats fine, but o his personal in 06 it showed a 24k rental loss. Now the properties are rented out and thats no problem, but will a UW just take the average of the business income from the K-1 or do we need to average in the rental loss, even though the properties are currently rented out?
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 6:13:20 PM
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| Okay, so rental loss wont hurt us if properties are occupied now? |
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terry_g
396 Posts |
Posted - 04/09/2008 : 6:16:50 PM
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You should be able to use the current rental/lease agreements.
quote:
Originally posted by neversaynever
Okay, so rental loss wont hurt us if properties are occupied now?
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Nico
3056 Posts |
Posted - 04/09/2008 : 6:31:42 PM
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quote:
Originally posted by terry_g
You should be able to use the current rental/lease agreements.
quote:
Originally posted by neversaynever
Okay, so rental loss wont hurt us if properties are occupied now?
negative. you go off of Schedule E. if Schedule E shows a loss even after you add back Line 20, then you take that loss.
i don't know of ANY underwriter underwriting a DU file that will let you use lease agreements when the REOs show up on Schedule E.
please correct me if i'm wrong.
regarding the income, sounds like you need to do a proper schedule analysis and come up with your AGI after add backs. take liabilities paid on the 1065 (or 1120) and remove them from the DTI, also. easy to forget that part. |
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daronc
1278 Posts |
Posted - 04/09/2008 : 7:25:27 PM
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quote:
Originally posted by Nico
negative. you go off of Schedule E. if Schedule E shows a loss even after you add back Line 20, then you take that loss.
i don't know of ANY underwriter underwriting a DU file that will let you use lease agreements when the REOs show up on Schedule E.
This is correct...
Anyone can say it wasnt rented and then produce a lease to benefit them.... Have to go by the black and white TAX RETURNS.... |
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VVance
2519 Posts |
Posted - 04/09/2008 : 7:34:13 PM
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| I would maintain that all the responces here are correct and that the Schedule E interpretation would vary from lender to lender, although in our current climate, it wouldn't surprise me (make a phone call). If the schedule E is used, I would imagine any non-recurring loss and depreciation on Schedule E could be added back to income. |
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daronc
1278 Posts |
Posted - 04/09/2008 : 7:36:02 PM
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| You can add line #20 (depreciation) back into your loss.... |
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Nico
3056 Posts |
Posted - 04/09/2008 : 7:45:11 PM
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quote:
Originally posted by VVance
I would maintain that all the responces here are correct and that the Schedule E interpretation would vary from lender to lender, although in our current climate, it wouldn't surprise me (make a phone call). If the schedule E is used, I would imagine any non-recurring loss and depreciation on Schedule E could be added back to income.
nothing to do with current climate. this is the way it always has been with DU. always.
lot of those sub prime brokers are trying to make New Century rules apply with DU and it's not working. then they call it the "current climate". sorry, but brokers have had DO access ever since DO 5.0 in 2000-2001. it's been the same way ever since then. |
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terry_g
396 Posts |
Posted - 04/09/2008 : 7:47:40 PM
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VVance, you are correct.
As the question related to rental income - Sched E vs lease agreements...
Per FHLMC LP Guide
Rental Income From Investment Property and 2-4 Unit Primary Residence OTHER THAN The Subject Property
• Signed leases may be used to substantiate gross rents; however, no more than 75% of the gross rental income is to be used, unless the prior two (2) years federal tax returns clearly support the use of a higher percentage.
Per FNMA.
A copy of the current lease agreement may be used ONLY if the property is NOT on Schedule E. (only last year is provided)
quote:
Originally posted by VVance
I would maintain that all the responces here are correct and that the Schedule E interpretation would vary from lender to lender, although in our current climate, it wouldn't surprise me (make a phone call). If the schedule E is used, I would imagine any non-recurring loss and depreciation on Schedule E could be added back to income.
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Nico
3056 Posts |
Posted - 04/09/2008 : 7:52:12 PM
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quote:
Originally posted by terry_g
Per FNMA.
A copy of the current lease agreement may be used ONLY if the property is NOT on Schedule E. (only last year is provided)
not only if it's not on last year's Schedule E, but only if the property was acquired subsequent to last year's tax filings. |
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 8:19:45 PM
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I'll admit, this is my weakest area, I don't do many of these schedule E borrowers.
Now, in 05 he showed the 24k loss, iin 06 it was about half that, and when he files in 07 it will show no loss on his rentals. So again, lay it on me, will the previous years losses be averaged in for gross income?
quote:
As the question related to rental income - Sched E vs lease agreements...
Per FHLMC LP Guide
Rental Income From Investment Property and 2-4 Unit Primary Residence OTHER THAN The Subject Property
• Signed leases may be used to substantiate gross rents; however, no more than 75% of the gross rental income is to be used, unless the prior two (2) years federal tax returns clearly support the use of a higher percentage.
Per FNMA.
A copy of the current lease agreement may be used ONLY if the property is NOT on Schedule E. (only last year is provided)
From Terry's post I gather that we should try running it through LP? |
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Nico
3056 Posts |
Posted - 04/09/2008 : 8:26:25 PM
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quote:
Originally posted by neversaynever
I'll admit, this is my weakest area, I don't do many of these schedule E borrowers.
Now, in 05 he showed the 24k loss, iin 06 it was about half that, and when he files in 07 it will show no loss on his rentals. So again, lay it on me, will the previous years losses be averaged in for gross income?
it's averaged just like other income on the returns.
i really think you should get with your broker or the person responsible for training in your office and go over some income basics.
i'm not trying to insult you, but if you don't know how to calculate income, then you need more training. |
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 8:35:35 PM
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| I'm usually yelling at people to calc income better, this instance i got stumped. Guess we all need training in loans we do once every 3 years, although with stated about gone it will probably be much more common :( |
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Nico
3056 Posts |
Posted - 04/09/2008 : 8:37:41 PM
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quote:
Originally posted by neversaynever
I'm usually yelling at people to cal income better, this instance i got stumped. Guess we all need training in loans we do once every 3 years, although with stated about gone it will probably be much more common :(
if you only do 1 full doc self employed guy every 3 years, i would first assume that you're a part time LO, and if not, secondly i would be in awe about how you sustain yourself if you do this full time and never look at tax returns and don't know how to calculate income.
if you're one of those LOs who took every single self employed borrower stated, then you probably missed out on a lot of good rebate over the last 3 years on borrowers you could have taken full doc. instead you took it from the borrower and gave it to the bank. |
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 9:03:19 PM
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Lot of assumptions there, for instance quote:
"if you only do 1 full doc self employed guy every 3 years, i would first assume that you're a part time LO, and if not, secondly i would be in awe about how you sustain yourself if you do this full time and never look at tax returns and don't know how to calculate income.
Do all SE borrowers own rentals that they claimed losses on? That was my only question here. I dont miss out on a loan, Ill go to bat for anything that looks like it has legs, stated or not.
The borrowers I did take stated, got the same rates as full doc borrowers Didn't you know there were no hits up to 95% R/T or Purchase until abut 3 months ago? Maybe you should have done more stated!!! |
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VVance
2519 Posts |
Posted - 04/09/2008 : 9:05:33 PM
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quote:
Originally posted by Nico
quote:
Originally posted by VVance
I would maintain that all the responces here are correct and that the Schedule E interpretation would vary from lender to lender, although in our current climate, it wouldn't surprise me (make a phone call). If the schedule E is used, I would imagine any non-recurring loss and depreciation on Schedule E could be added back to income.
nothing to do with current climate. this is the way it always has been with DU. always.
lot of those sub prime brokers are trying to make New Century rules apply with DU and it's not working. then they call it the "current climate". sorry, but brokers have had DO access ever since DO 5.0 in 2000-2001. it's been the same way ever since then.
Ok...I'll bite. You are wrong in terms of what all Fannie lenders will accept in regards to Rental income, regardless of what the DU says (and I question your interpretation of findings always requiring you to take the Schedule E figure verbatim). The Schedule E is not always the determining factor in figuring rental income....Maybe it is where you work, which by the way, is curiously missing from your profile. On a number of app's I've written, The rental income was determined with rental agreements, with tax returns also provided, lender guideline who sold everything to Fannie, whether or not the Schedule E reflected a profit or a loss.
You want to attempt to insult me, go for it, I don't care...but when someone posts on this site with an honest question, what need do you feel to insult them? What's your purpose? Inferiority complex?
Have a nice day :)
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 9:06:51 PM
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| I second that |
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Nico
3056 Posts |
Posted - 04/09/2008 : 9:07:15 PM
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quote:
Originally posted by neversaynever
Lot of assumptions there, for instance quote:
"if you only do 1 full doc self employed guy every 3 years, i would first assume that you're a part time LO, and if not, secondly i would be in awe about how you sustain yourself if you do this full time and never look at tax returns and don't know how to calculate income.
Do all SE borrowers own rentals that they claimed losses on? That was my only question here. I dont miss out on a loan, Ill go to bat for anything that looks like it has legs, stated or not.
The borrowers I did take stated, got the same rates as full doc borrowers Didn't you know there were no hits up to 95% R/T or Purchase until abut 3 months ago? Maybe you should have done more stated??
assumptions is all i have to go on until you shed some light. lemme address your questions. no, not all SE borrowers, but some.
there were no hits in certain instances, you are correct. so are you telling me that every single self employed borrower you did (remember, you did them all stated) qualified for that particular program? you never took ANYONE Alt-A? you never did any self employed borrowers with non conforming loan amounts? not one? in 3 years? |
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Nico
3056 Posts |
Posted - 04/09/2008 : 9:09:23 PM
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quote:
Originally posted by VVance
Ok...I'll bite. You are wrong in terms of what all Fannie lenders will accept in regards to Rental income, regardless of what the DU says (and I question your interpretation of findings always requiring you to take the Schedule E figure verbatim). The Schedule E is not always the determining factor in figuring rental income....Maybe it is where you work, which by the way, is curiously missing from your profile. On a number of app's I've written, The rental income was determined with rental agreements, with tax returns also provided, lender guideline who sold everything to Fannie, whether or not the Schedule E reflected a profit or a loss.
You want to attempt to insult me, go for it, I don't care...but when someone posts on this site with an honest question, what need do you feel to insult them? What's your purpose? Inferiority complex?
Have a nice day :)
i'd like to know who those places were, and i'd be surprised if they weren't either out of business or in financial hardship. please share.
especially since someone just posted the link to the selling guide where FNMA says it black and white that rental agreements may ONLY be used if the property was not in last year's Schedule E. |
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 9:10:59 PM
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| not anyone that could have gone full doc, I'm sure of that... |
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Nico
3056 Posts |
Posted - 04/09/2008 : 9:11:47 PM
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quote:
Originally posted by neversaynever
not anyone that could have gone full doc, I'm sure of that...
you don't know how to calculate income. how can you be sure? so you know how to do it when they don't qualify, but when they might qualify, then you forget? |
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neversaynever
1044 Posts |
Posted - 04/09/2008 : 9:14:30 PM
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| Lol dude what are you talking about? I know there has to be a certain amount of gross income (plus depreciation) that has to be on the table. It doesn't take a scienteist to tell me that Unicorns aren't real!!! |
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Nico
3056 Posts |
Posted - 04/09/2008 : 9:16:53 PM
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quote:
Originally posted by neversaynever
Lol dude what are you talking about? I know there has to be a certain amount of gross income (plus depreciation) that has to be on the table. It doesn't take a scienteist to tell me that Unicorns aren't real!!!
but if you didn't break down the 1120s or 1065s to remove some of the debts the borrower has, or you didn't calculate the Schedule E or Schedule C correctly, then how do you know how much income you have to work with?
and Unicorns are real, because i saw it in a movie one time. |
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kalee3415
196 Posts |
Posted - 04/09/2008 : 9:19:19 PM
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I do a great deal of investment properties and although findings will read to use rental income from Sched. E unless the property was aquired after filing, I have found that underwriters give flexibility with this. For example, last month I had 4 close with Amtrust (although we have MGIC underwrite it even w/ no mi because we prefer them to Amtrust u/w). I called MGIC prior to submission b/c of the losses claimed on their sched E and the underwriter said to just get them submitted because it is case by case on how they will determine income/loss. Another went to Flagstar with no problem. If the full losses + depreciation would have been used there would have been DTI issues. I have closed many like this. With my MGIC files they did take into consideration that not all properties were rented for the full year. To be honest I am not sure of their exact calculations, (there were 9 properies and wasn't going to go through them all) but it was not the full loss nor was it figured from the lease.
So yes there is some grey area on how they will figure it. When our LO's are not sure we submit with the lease amounts at 75%, let the u/w know if the property was aquired mid-year or was not being rented due to renovations, etc., and let the underwriter adjust it. I would suggest you treat it like a manual submit and don't order an appraisal until you have approval. Of course you could call them prior, run the scenario by them and see what they say.
I don't know your borrowers situation as far as how many properties, etc., but is there any chance if you declared no rental income his ratios could absorb the mortgage payments/taxes/insurance? Although they will have the full returns due to him being SE, they would have only needed Sched. E to figure rental income if it was being used to offset the mortgages. That may be enough to get you past the loss.
quote:
Originally posted by neversaynever
An LO here has an approval with DU findings, but we are not sure what Underwriting will use as income.
Borrower owns business for 7 years, findings said we only need to use personal taxes for 2 years if income shows increasing. Ok well it does thats fine, but o his personal in 06 it showed a 24k rental loss. Now the properties are rented out and thats no problem, but will a UW just take the average of the business income from the K-1 or do we need to average in the rental loss, even though the properties are currently rented out?
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Nico
3056 Posts |
Posted - 04/09/2008 : 9:27:14 PM
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| even if they weren't using rental income to qualify, you would still need to submit the Schedule E unless DU only needed the 1040s and no schedules. never seen returns submitted with "all applicable schedules" and leave a schedule out. |
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kalee3415
196 Posts |
Posted - 04/10/2008 : 07:17:40 AM
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Sure they would still need to submit them due to him being SE and needing all schedules. What I am saying is that when the borrower is not SE the condition to submit Sched E for rental income is only if you are using rental income. I am suggesting that the u/w is more likely to be lenient towards the loss on sched E if no rental income is used to qualify.
quote:
Originally posted by Nico
even if they weren't using rental income to qualify, you would still need to submit the Schedule E unless DU only needed the 1040s and no schedules. never seen returns submitted with "all applicable schedules" and leave a schedule out.
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