Cheating on Your Taxes Could Cheat You Out of a Loan
There are some advantages of being self employed, you can write off quite a bit to avoid paying the IRS. You can also find yourself in trouble with the IRS because you were writing off items that may not have existed or just was flat wrong. I am sure if the IRS investigated every self employed individual, the American deficit would probably disappear due to back taxes being owed.
A couple of years ago getting loans for individuals that did not show much taxable income on there tax returns was not problem with decent credit scores. Well it is a problem now. It also is a federal crime to state on a mortgage application that you make more than you actually do. This is considered fraud, and was going on all over the United States with various mortgage bankers and brokers.
Currently no matter what your credit score is, you need to show income on your Schedule C tax return in order to qualify for a mortgage. There currently is no market for loans where qualifying income can not be documented. There are however hard money lenders willing to loan money to individuals like this, but those terms are close enough to being classified as loan sharking.
Let’s assume you do show some income on your tax returns, and typically lenders will require the last two years of tax returns for qualifying purposes. What a lender will do is average the last 24 months to determine your income. If you showed $20,000 one year in taxable income and $30,000 the next, your income would be $2083.00 per month. Regardless of whether you actually make $120,000 a year but your tax return shows $2083.00 per month, you will only qualify based on what is actually reported to the IRS.
So in my opinion those who actually make good money and cheat on there tax returns will ultimately cheat themselves out of a loan or qualifying for the mortgage they actually wanted. This applies to someone that has a $1,000,000 in the bank and a 820 fico score, rules are rules in banking.
So this year when you file your taxes and plan on making a home purchase I would re-consider how much you are writing off on your tax returns.
With the way banking is now, there will not be any creative financing to squeeze families into home loans. You will find the all loans will be by the book. This is all with good reason; look at the condition our current lending market is in. There were tons of families put into homes they really could not afford.