These days even the affluent in LA are stuck between a rock and a hard place, or should we say the IRS and the bank.
Just 24 months ago getting a home loan was easy especially if you have excellent credit and a lot of equity, however now it's important to prove you can make the payments as well.
So take the typical LA business owner who makes well over 6 figures a year and has no outstanding debt., with good credit and a bunch of equity, they qualify for a refinance right?
Actually it all really depends on their Federal tax returns filed with the IRS for two consecutive years. Most business owners attempt to look broke at the end of the year to avoid paying income tax, however while this strategy is good for saving money, it really hurts when qualifying for a home loan.
The banks will only lend money on the amount of "taxable" income one shows on their returns as proof that you can repay the loan. So if you claim that fuel and vehicle expenses totaling $12,000 per year, the banks underwriters will deduct $1,000 per month off of your income stating that it costs you this much to earn your nice income and that may be the amount needed for you to qualify for your loan.
So as you take the time to do your taxes this year, ask yourself the question, will I need to get a home loan within the next two years? If so taking that tax deduction may not be the right choice, however if you are not in the market for a home loan, then deduct away.
If you have not already done so, schedule a time to meet with a mortgage planner to review your current situation.
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