Retirement Account Contributions and Mortgage Loan Qualification

| | Comments (0)
I know 401k contributions impact a persons Adjusted Gross Income, thus would it also affect the amount a person could qualify for? If so, I will delay enrollment for a few months...

This depends upon what documentation you use to qualify. For most of those who are salaried or hourly W-2 employees, debt to income ratio is calculated using gross pay from w-2s and pay stubs. This is more more than half of the people out there. For these people, it doesn't matter, because the computation is based upon gross pay before any deductions - even withholding. The thinking goes that you can always stop retirement contributions if you need the money now to afford your mortgage .

For those who have to use the full federal tax forms to qualify however, the computation is based upon Adjusted Gross Income. This is basically three groups: The self-employed, commissioned sales people, and construction trades, the last being notorious for periods of unemployment between the end of one project and finding another project that's hiring. Adjusted Gross Income, or AGI, is after retirement contributions from taxable income, as well as business expenses and several other things are deducted. The reason for this is those people have more expenses that statutory employees, whether those employees are cube farm dwellers, have a corner office, or whatever. Lenders are well aware of this. The only reason why they're willing to accept taxes as proof of income is very few people will tell the IRS they make more money than they do when it means paying so many cents of every dollar they didn't make in taxes.

This can make it very difficult for people in these three groups to qualify via documentable income. This is the reason why stated income loans were created. I don't like them, but there is a reason why they exist. The rates are higher and the underwriting requirements are tougher, but without that, some people would never be able to qualify for a home loan, no matter how credit-worthy. As I've said before, stated income is subject to abuse, and you'd really rather qualify "full documentation" if there's any way you can, especially now when lenders are suffering stated-income-phobia and it can mean having to come up with tens of thousands of extra dollars down payment and pay an interest rate that might be two full percent higher than people who can qualify full documentation will pay, and might not be able to find a lender who will lend them all of the money they need for the purchase.

So it will make a difference if you're one of those who needs to use tax forms, but if you're someone who can use w-2s to qualify, it shouldn't.

Caveat Emptor

Categories

Delicious Bookmark this on Delicious StumbleUpon Toolbar Stumble It!
Please be civil. Avoid profanity - I will delete the vast majority of it, usually by deleting the entire comment. To avoid comment spam, a comments account is required. They are freely available, and you can post comments immediately. Alternatively, you may use your Type Key registration, or sign up for one (They work at most Movable Type sites). All comments made are licensed to the site, but the fact that a comment has been allowed to remain should not be taken as an endorsement from me or the site. There is no point in attempting to foster discussion if only my own viewpoint is to be permitted. If you believe you see something damaging to you or some third party, I will most likely delete it upon request.
Logical failures (straw man, ad hominem, red herring, etcetera) will be pointed out - and I hope you'll point out any such errors I make as well. If there's something you don't understand, ask.
Nonetheless, the idea of comments should be constructive. Aim them at the issue, not the individual. Consider it a challenge to make your criticism constructive. Try to be respectful. Those who make a habit of trollish behavior will be banned.

Leave a comment

Copyright 2005-2017 Dan Melson. All Rights Reserved

 



Buy My Science Fiction Novels!
Dan Melson Author Page

The Man From Empire
Man From Empire Cover

A Guardian From Earth
Guardian From Earth Cover

Empire and Earth
Empire and Earth Cover

Working The Trenches
Working The Trenches Cover

Preparing The Ground
Preparing The Ground Cover

Building the People
Building the People Cover

The Book on Mortgages Everyone Should Have!
What Consumers Need To Know About Mortgages
What Consumers Need To Know About Mortgages Cover

The Book on Buying Real Estate Everyone Should Have
What Consumers Need To Know About Buying Real Estate
What Consumers Need To Know About Buying Real Estate Cover

Dan Melson's San Diego Real Estate and Mortgage Website

↑ Grab this Headline Animator

About this Entry

This page contains a single entry by Dan Melson published on April 15, 2008 7:00 AM.

Another Scam: "Negative Equity? Sell and Get Cash!" was the previous entry in this blog.

My Sixty Second Public Service Announcement about Buying Real Estate is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.



What I Do

Read My Promise To All My Clients

My Office Contact Information

There are no better agents in San Diego County!

There are no better loan officers in California!

Ask for your free consultation today!

**********
Favorite Loans Available Now

My Listings

Hot Properties!
Email me! danmelson(at)danmelson(dot)com
**********
I want your business!
Unhappy with your loan?
Can't afford your payments?
I can help!
---
Want to buy smart?
Want to sell smart?
I can do it!
---
Bankruptcy?
Foreclosure?
In Default?
Let Me Help!
---
Want to buy properties in distress?
(defaults, foreclosures and REOs)
Ask Me How!
---
Bad Credit?
No Down Payment?
Ask Me What I Can Do!
---
1031 Exchanges
Forward, Reverse, or Partial
I Get It Done!
---
Should I Buy Now?
Should I Sell Now?
Would It Help Me to Refinance?
I'll tell you if the answer is "No"
I'll help you if the answer is "Yes"
---
Contact me:
My Office

Want San Diego MLS?

Here's my office's link to San Diego MLS

Enter your email address:

Delivered by FeedBurner

Subscribe with Bloglines Add to Technorati Favorites

Not in San Diego?

My other site is here
Powered by Movable Type 4.21-en