By: Tom Andrews, CPA
Over the past 24 months our office has been very busy assisting clients who are either applying for a new home loan or refinancing their current home. As real estate prices and interest rates have decreased there has been a rush close on 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. A tax return is not “third party” documentation typically an accountant prepares your tax return from the information you provide them. In many cases the lender wants confirmation from your employer that you were gainfully employed and you were not lying 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!?” … it will not do you any good to get frustrated, jumping through endless hoops is sometimes part of the lending process, unfortunately the underwriters who are approving the loan may not be satisfied with the initial documentation provided someone else in their department wants more 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 standards prohibit a CPA from attesting to a client’s solvency and it is nearly impossible for a CPA to attest 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.