Home Loans and Refi’s—Be Prepared

by Tom Andrews, CPA

Over the past six months our office has been  busy assisting clients who are either applying for a new home loan or refinancing their current home.  As real estate prices have increased  and it now appears  interest rates start decreasing again there has been a more activity with refi’s and new home loans.  Unfortunately many yacht crewmembers are victims of circumstance which prohibit them from providing all of the documentation necessary to secure their loan.  Typically a lender will want to see copies of the borrowers past tax returns, W-2’s, and any other third party documentation that will make that lender feel comfortable with extending credit to the borrower.  Unfortunately many yachting crewmembers don’t always have their tax returns accessible and even more troublesome many crewmembers don’t receive W-2’s or 1099’s from their employer.

When a crewmember is thinking of applying for a loan it is very important to have all of your ducks in a row before you start the application process, this means getting current all federal and state tax filings. Inquire with your yacht payroll company if they will be issuing you a W-2 or some other type of documentation that states what your income has been, again lenders are requiring third party documentation more than ever now.   In many cases the lender wants confirmation from your employer that you were gainfully employed and you were not misleading about your income.  To make matters more complicated If you are working on a foreign flagged vessel chances are your employer is not in compliance with US payroll tax law and they are not issuing you a W-2 or 1099, in those cases I would recommend you have the owners office provide you a letter on vessel letterhead stating your income and how long you have worked on the vessel.

As you are working with your mortgage broker you might become frustrated that the lender is constantly asking for additional information, I have seen many clients become upset asking “how come they didn’t ask for that document to begin with!?” Unfortunately the underwriters who are charged with approving the loan may not be satisfied with the initial documentation being provided by the mortgage broker and they are simply seeking additional assurance.  Also be advised that the lender may request that the borrowers CPA provide a letter confirming the future earnings or solvency of the borrower… in most cases this is a request that your CPA cannot comply with.  Most professional accounting boards prohibit a CPA from attesting to a client’s solvency without conducting an attestation engagement.  It should also be noted that it is nearly impossible for a CPA to attest as to how a new mortgage payment will affect the borrowers future ability to keep that loan current.  In most cases a CPA can only confirm how long you have been a client and that they did prepare your tax returns from the information provided by the client.   In conclusion I recommend that when working with a mortgage broker that you fully explain the nature of your work.  If you are not issued a W-2 or 1099 be prepared to provide additional documentation proving the nature of your income.

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