verifiable legal employment with non-taxable income, was told by a lender that it can't count toward mtg loan because it's not on a w2.

Asked by Jason Nunya, Oklahoma City, OK Wed May 29, 2013

True, or not? My wife works for my Grandmother, as a caregiver and companion, handling her affairs and household. She has for three years. It is full time, legal employment, she is there M-F 8-3. This is half our household income.The law states the family trust my grandparents established is allowed to gift her wages to her/us, as family members, which means it is non-taxable. It's a great deal for everyone, and again, perfectly legal according to both lawyers we've had review it, but we just had a lender tell us they won't count it towards our household income, because it doesn't appear on a W2. We can show the weekly direct deposit records for three years, and prove the income. There is no reason this income shouldn't be counted. Right now, this is keeping us from a house we want and can perfectly well afford, but not if we're counting my salary alone for a family of four. Any advice, or knowledge of situations like this? I know it's unusual, but surely it isn't unique. Thanks in advance.

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Julie Riggs’ answer
Julie Riggs, Agent, Oklahoma City, OK
Wed May 29, 2013
After the sub-prime lending disaster, the mortgage industry has really tightened up requirements in recent years. That being said, my advice is to try a different mortgage company. Different lender, different requirements. Are you a veteran that can qualify for a VA loan? Is the home in a rural area and could qualify for USDA mortgage lending? Does your income qualify you for any bond money or first time buyer programs? Don't take "No" for an answer - go ask someone else! Best wishes to you.
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Joseph Scroc…, Agent, Wildwood, NJ
Thu May 30, 2013
OK here you are getting the benefit of my decades of practice as a tax accountant, mortgage broker and real estate sales person.

First, distributions from a trust are not taxable to the beneficiaries as long as the trust has paid tax on the income prior to distribution. Trusts can either pay out the trust income and let the beneficiaries pay the tax or the trust can pay the tax. So, no tax document is required from the trust to the beneficiary as long as the trust paid the income taxes on the money distributed to the trustee. You have 3 years of bank statement showing the receipt of this money. That along with a letter from the trustee confirming the start date, regular amounts/frequency of the payments and confirming that the payments will continue for at least 3 years will suffice.

This is a case of a loan officer, processor and underwriter not having a clue as to how to handle your wife's income. Good luck.
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Josh Barnett, Agent, Chandler, OK
Thu May 30, 2013
Call Kurt at 405-722-5626 and go over your situation with him. Kurt is the owner of Financial Concepts Mortgage, tell him Josh sent you.
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Scott Godzyk, Agent, Manchester, NH
Thu May 30, 2013
The key is if she receives at least a 1099 and she claims this income on her tax returns. If so it should be legal income. If it is not on your tax returns and no 1099 was issued then it may not be legal income because you did not claim it. You may want to find a new local and trusted loan officer to get a 2nd opinion if you did indeed claim it
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What we've been advised by the tax attorney is that non-taxable gifts are not reported on the 1099. And, because it's immediate family, the trust is allowed to gift the money, (up to 13k to her and I each per year), and even in exchange for services, remains non-taxable; a 1099 isn't required. There isn't any requirement for us to report the income to the IRS. The trust only has to report giving gifts over 13k per person, per year. The real issue becomes finding a lender who is willing to accept a form of verifying income other than the standard W2. The lender I spoke with told me 'if it isn't on a W2, we won't be able to count it.' So, as everyone has recommended, we will continue to search for a lender who will evaluate our situation instead. Thanks, and I appreciate all of the replies.
Flag Thu May 30, 2013
Karen Moseley, Agent, Edmond, OK
Thu May 30, 2013
Give Ken Janz at First United a call, 405-205-4845. They do in house loans.

Karen Moseley, Realtor
Coldwell Banker Select
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Delena Day, Agent, Moore, OK
Wed May 29, 2013
The lender I use says that it doesn't neccasarily have to show up on your W2 but you should be claiming it on your tax returns, that there is a place for (trust income). He is a lender with First United, and very helpful in difficult situations. He said if he could look at the entire situation he may be able to assist you. If you would like his contact information I would be glad to provide it.
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