How do lenders scrutinize charitable donations?
I am a researcher with significant grant income. The stated purpose of those grants are to pay the expenses associated with costs that I incur while volunteering with a 501c3 organization that works with homeless women. (The research entails shadowing service providers and interviewing clients. As a result, I have significant costs associated with mileage, lodging, and donations to the group. I had originally assumed I'd deduct the expenses as business expenses. However, all of these expenses actually qualify as charitable deductions: all of them have been incurred in the course of volunteering for a registered 501c3.) Knowing that I am in the process of applying for a mortgage, my accountant has suggested that I take the charitable deduction rather than the unreimbursed business deduction. My concern is, how will that look to mortgage lenders? Especially if I max out to the 50% mark? The IRS Is one thing (I can handle them with the support of my accountant and tax attorney) but what about mortgage lenders? Will they be concerned about seeing such a high percentage of charitable deductions? by JMom258 from Grosse Pointe, Michigan. Jan 8th 2015
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,249 contributions
Normally charitable contributions would not be flagged at all but your accountant is correct that business expenses definitely are. If the contributions are very large it is always possible they would be questioned, but it may depend on the particular underwriter. Keep in mind that lenders need to confirm that your source of income will continue for 3 years after closing. If the grant(s) will expire prior to the 3 years you could have an entirely different issue.
Thanks Phil. We aren't even using the grant income to qualify for the mortgage. I'm the student. My husband is the salaried worker. He is applying for the loan by himself. We don't live in a community property state. The only reason this is coming up is because we file married filing jointly. I'm gifting cash towards the down payment but the lender is not considering my income.
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,249 contributions
Gotcha, this is related to the other question about unreimbursed biz expenses? Please let me know if you run into problems and I can help
Yes, exactly. The loan officer is now thinking that a possible Plan B would be for us to file for 2014 and not deduct for business expenses. That way my husband (the applicant) would not have any unreimbursed business expenses for the past two years. I think she (the loan officer) has resolved the issue related to my business expenses. However, when we file, I was thinking taking the charitable deduction instead of the business deduction. Accountant says that I would qualify for the charitable deduction. However, we'd be talking about a large deduction - 30% of the income. I'd think a mortgage underwriter would scrutinize that. (Of course, the other option is simply not to report my fellowship/grant income but that's a question for a different forum ;)
Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,249 contributions
Good luck with it!
William J Acres (William_Acres)
#74 ranked lender in Arizona - 8,728 contributions
If you take the expenses on IRS form 2106 and those expenses are identified as the "Non-Borrower" expenses, then they should be ignored, but some lenders have added guidelines which state even non borrower un-reimbursed business expenses must be deducted.. .. if you show it as a charitable contribution, regardless of how much, the lender will not question it.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com
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