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FHA underwriting documentation requirements

So, we're in the final stretch of the underwriting process and the underwriter has requested the an audited P&L and CPA contact information (to verify employment) for a company I own and that my spouse works for, but I do not work for.  I do not have a CPA and keep my books on Quickbooks.  My books are simple, aside from few expenses, my largest is income and paying income taxes on my spouse.  From what I've read, having my books audited will cost thousands.  But, since it's a private company, there's no requirement to have them audited.  In addition, I do not rely on my company's earnings for my own income.  You would think that by supplying bank statements, tax returns, etc. for both the business and the employee (my spouse) as well as pay stubs that this would suffice!  Is there a requirement for this sort of documentation on an FHA loan?  If so, is there an "or" in the requirement?

  • September 03 2011 - Brookland
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Answers (7)

I don't believe the underwriter wants to deny the loan, I think he/she is looking for a reason to approve it.  If denial was the goal, the loan could be denied for wife's lack of work history.  Because wife works for family, it is necessary to ask for proof of wife's ownership/or lack thereof, and tax returns are typical documentation for that.  Once it became known that the business itself is less than two years old, it is necessary to evidence the strength of the business as it must be reasonable to expect that wife's income will continue for three years into the future.  Since two years of business tax returns are not available, the underwriter is asking for the audited P&L to show the business is not moving in a negative direction.  Unfortunately, there is no other documentation the underwriter can use to document due diligence to a prudent underwriting decision.  Again, I believe the underwriter is going out of his/her way to approve the loan.(having said that it may be possible to negotiate with the underwriter to have her settle for 12 months of business bank statements and a CPA's opinion: review of the books, last year's tax return and the last 12 months of bank statements.  No third party verifications as in an audited review).

It is not possible to eliminate the information regarding this business and the wife's income from the application for it is mortgage fraud to withhold information that could be material to an underwriting decision. (Part of the FBI's definition of mortgage fraud)
  • September 08 2011
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This requirement usually comes up when tax returns for 2010 have not been filed or on extension.  Is that the case. 
  • September 08 2011
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You may not rely on the income but you are liable for the expenses and how can the lender confirm accurate income/liabilty in regards to the company you own with out a YTD P&L?  If your income and expenses are consistent with previous years you won't have an issue and if the books are that simple paying an accountant to audit them will not costs Thousands.  I am sure they charge based on complexity.

Annette - the OP still owns the business excluding the wifes income will not eliminate the need to verify the expense/income from that business.
  • September 08 2011
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The underwriter is nervous about your wife's income and wants to deny the loan. No one that is a small consultancy has audited books. The question becomes do you qualify for the mortgage on your income? If so speak to the manager about changing your application to leave out your wife's income.
  • September 08 2011
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@Lance:

I believe they are using AUS.  It's a purchase with no cash out.  Credit scores are 720+

The business has been operational for almost 1.5 years, but the employee (my spouse) has been employed for less than one year - fresh out of school.  The income is increasing year over year for the business.  The business is an LLC, so the profits/losses pass through to my income (right now we're up $10K for the year.  Funds from the business are not needed for closing.

I also want to point out that I make over $150K by myself independent of this business that I own, so I do not rely on the business for income at all.  This is a basic consulting business for which my spouse works and makes an income.


Purchase price = $696K
Down Payment = $31K (already paid)
Closing costs = $11K
Total assets available for closing = $23K and growing every two weeks

Hope that helps with clarifying the situation. 

I had read somewhere that the requirement is audited P&L OR quarterly tax returns.  I do not have CPA so I would rather go for the tax returns that shows wages paid and taxes paid on those wages by the business.  Also, they want a third party (CPA) to verify my spouse's employment.  Not sure what other options there are for this one...

This is very frustrating because we're down to the last three weeks in this process and they spring this on me.  Plus, they've known about the the structure of this arrangement from the beginning.  Also, I've given them SO much documentation and it's still not enough.  Now they want me to potentially shell out thousands of dollars to my non-existent CPA for a piece of paper.  It's not like they haven't known since January of this year when I first applied and was given a commitment letter in February.

Any advice would be greatly appreciated.
  • September 03 2011
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What we don't know are:
-AUS or manual underwriting?
--Purchase or Refi (if Refi, Cashout?)
-Credit score/history?
-How many years of this self-employment? ...How many yrs of tax returns?
-business income trend?
-Structure of the business (sole, partnership, S-corp)?
-Funds from the business needed for closing?

The answers to these questions will determine the documentation required.
  • September 03 2011
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Assuming you have asked this question of the lender already this lender must not like something about the income.  Reasons the underwriter might be nervous might be income consistency? time in business?  or maybe just that she is the only employee and it is a family member?

Audited financials are not a normal requirement but the underwriter must want some "independent" opinion. You might want to ask if a CPA review might work or something less costly to still get the job done.

My guess is another lender may end up being your best option but you will want to do address the self employed/wife employee up front.
  • September 03 2011
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