Hello all,
I’ve got a somewhat general question related to MHP depreciation expenses and home loans. When applying for a home loan, is it normal for the bank to add back depreciation and amortization expenses to one’s income? I’m getting a lot of blank looks from mortgage brokers, and have done such a good job of increasing our depreciation expenses, our income is almost non-existent from a tax perspective. The best I can figure is that FNMA allows it, but most banks don’t know what to do about it.
Regards,
Greg
Greg:
Are you applying for a home mortgage or a commercial MHP mortgage? Do you have alot of rental properties?
“When applying for a home loan, is it normal for the bank to add back depreciation and amortization expenses to one’s income?”
Yes, each lender (underwriter) will have their own formula for rental income and depreciation. Gross rental income - 25% vacancy rate, - 5% management expense, - actual expenses, + depreciation/amortization = net rental income.
If you have a 680 or above FICO you could go stated, no doc, no ratio, nina to name a few.
Don,
I’m applying for a home mortgage on my home. Already have the MHP. The MHP is large enough that the depreciation and amortization expenses (and the fact that we are now “Real Estate Professionals” )wipe out half my AGI, which is a good thing in my mind. The mortgage people I’ve talked to believe you can’t add back these expenses to AGI for a standard mortgage, but I believe FNMA underwriting standards specifically state to add back to applicant’s income.
Greg:
OK your income statement (P&L) from the MHP will dictate what your net is after everything including debt service. But like I said before if your credit is good you can go with one of the “no doc” programs like stated. If your mortgage people don’t know this then get another mortgage person but don’t keep letting them pull your credit or you may not qualify for any good programs. ie get a pdf copy of your credit report and provide it to appropriatly qualified mortgage person.
Greg,
You shouldn’t have to go the “no doc” route. A residential lender should understand that the depreciation losses shown on your tax return are just “paper losses”. As a matter of fact, this should increase your borrowing ability since your take home pay is higher due to the paper losses.
My suggestion is that you talk to another lender who understands and has worked with people in the past who have earned income along with an investment property.
Steve