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Things I Learned from the Mortgage Broker Today

In no particular order:

  • Rent history has little or no bearing on a mortgage. You could pay $1500/month in rent and apply for a mortgage that costs $1000/month and it won't matter one bit.
  • Paying rent does not positively affect your credit rating. Making $1500/month payments for five years won't matter. But if you slip up and they have to collect a few bucks (typically after you leave and a security deposit doesn't cover the repairs), it can cause problems.
  • Marks (late payments) stay on your credit report for seven years. Have your credit report checked before going in and clear up any incorrect marks.
  • If you can't rectify it with the company, you can file a credit grievance with the credit bureau.
  • To anyone who is self-employed and looking to buy a house within two (tax) years: do not deduct anything. Don't deduct your rent as an expense, don't deduct office equipment. Just scrimp and pay regular taxes on everything on which you can afford to pay taxes. Mortgage brokers look at net income and don't care if you wrote off $500/month ($6,000/year) for your home office. Kinda sucks, but it's true.


Some of the numbers above I made up and some of the things I learned simply by asking, not necessarily because they affected me. But they may affect you.

Two years ago I hadn't planned on buying a house, so I can't blame my accountant for saying "deduct the % of your rent that your office occupies." I've never taken anything more than pretty safe, legal, easily proven deductions. My accountant tried to get me to say I'd taken "business dinners" when I'd just gone out with friends and so on, but I shied away from such activity. However, I did deduct a portion of my rent, a portion of my electricity (quick quiz: which uses more, a dual Power Mac G5 used 15 hours/day or a bedroom clock, three light bulbs, a TV, and a refigerator?), and so forth.

As to the factual errors on a credit report, count me in. In 2000, my family took a vacation to Hawaii. I had a Verizon phone that I purchased for that purpose (along with 1000 minutes) for something like $49.95. I was a student at the time, and I talked to my girlfriend at the time quite a bit. After all, I had Verizon's "nationwide" plan, and Hawaii was red on the map (every state was, hence "nationwide" coverage).

We vacationed in June. Sometime in November or December I got a bill for just north of $1000. Verizon claimed I was outside their network and "roaming" despite the continued existence of Hawaii as a state clearly "in their coverage." I read all of the fine print and nothing excluded Hawaii, talked about "contiguous" or "continental" states, or whatever.

I didn't have a bunch of money. I was a college student. I considered suing Verizon, but my school - despite having a good graduate law school - wouldn't help. So I finally paid. But Verizon dinged my credit and put the knock on my report. They dinged it in 2003. The bill was paid in late 2000. Why they filed something three years later is beyond me.

I called Verizon today and told my story to the guy, and he asked if I had applied for credit in 2003 and indicated that if no credit checks occurred between 2000 and 2003, it might not pop onto the list until then (BS, I say). I bought a car in August 2001 (albeit with a high rate due to, at that time, a medium-quality credit rating), so that invalidates his idea. He's going to transfer me to the accounts department. And now I've got to call a Verizon in a different region. Fun, joy, happiness. They're closed. I'll be doing it tomorrow (800-779-2699).

7 Responses to "Things I Learned from the Mortgage Broker Today"

  1. You may know this already, but Clark Howard has a lot of tips for people in your situation. He's a good guy in general, but specifically about mortgages and credit.

    I would fire an accountant who suggested I do unethical things as yours has done.

    I have in the past not deducted things like power bills & % of home for business just because I don't want to deal with straightening it out when I resell my home. (You get to claim it when you live there, but then you have to back all that out when you sell. No thanks.)

    One other piece of advice: do NOT buy a car from the time you start looking at homes until AFTER you close on the house and have the keys in your hand.

  2. My accountant never suggested anything unethical. I simply draw my moral lines at a different place in the sand. I'd take business folks out to dinner, but it was merely because we were hungry and wanted to discuss business at the same time. Kill two birds, as they say. That's perfectly ethical, but I never felt as though I needed to "wine and dine" anyone, and thus, I personally didn't see it as a true business expense.

    And yes, I know not to buy a car when looking for a home. Well, I suppose I could if I had $25k to spend on a car…

  3. Your original description was that he suggested you take "business dinners" when I'd just gone out with friends. But with your second description, I see what was a perfectly legitimate business expense. I retract my earlier remark on the subject.

  4. Unethical? Are you guys for real?

    Scr%w IRS. They deserved to be banged whenever they can. I work for a family business making mills every year. If they pay 10% taxes I'd be surprised. All legal of course, because corporation and big money gets a pass. I've small business on a side, making 10K a year (if I'm lucky). F'kers get 60% off that, easily. Would I write off stuff I didn't "really" used for business? Bet your a$$ I would, and I did. While millionairs are getting reacher all we (small bus) can do is just bend over a little more, each year. Yesterday I wrote my tax return (?) check. Yes, I do owe extra taxes. Why? Beacuse my wife and me are both working, even having 0 dependant and single for monthly deduction we still have to pay more. My boss, who can't spend his money will probably get a fat check back.

    So bottom line - who wants to go out for dinner? Is on me, I'll write it off!

  5. The dinner deduction is the most ridiculous concept ever. At the same time, IRS makes a fool of anyone who doesn't take advantage of it.

  6. Rafcin, this is why I support the Fair Tax proposal. Let's, once and for all, get rid of the IRS completely!

  7. So I happened on this site 2 years after these comments were posted so you all may or may not get my response. I don't really care one way or the other I guess.

    I'm amazed at how little people actually know or understand about taxes and the IRS. But I've worked on the inside of it all. This is by no means an attack on anyone on here. Just an observation and some thoughts.

    To Eagle:
    You can deduct the expenses related to your business % use of your home, following certain guidelines, and when you sell it you don't have to take it all back and claim capital gains tax. The only expense related to your home that needs to be recaptured, as the IRS calls it, is depreciation. If you have a home office and don't take the deduction so you don't have to recapture it when you sell isn't always good idea, especially if you are taking ANY business use of home expenses. Per the Internal Revenue Code, you are not required to take the depreciation deduction but you are required to recapture it upon sale whether you took it or not. There is some wiggle room in this. Usually if you sell your main home and you have lived in it 2 of the past 5 or 7 years (can't remember which) you don't have to recognize the gain.

    Rafcin:
    The cheaters do get caught. It may take awhile, but it always catches up to them. Go ahead and cheat. Remember - there is no statute of limitations on fraud when it comes to taxes and the IRS. You're only cheating yourself anyway. Most of those taxes you pay go towards your future medicare and social security needs. The less you pay in the less you get from them when you retire.

    To all:
    I am for fair taxation of all. A flat percentage sounds good to me. Why punish the rich for making more money and working to be successful? (I am by no means rich - not even close) But fair means fair to all. If you propose 10% tax on income for someone who only makes $10,000 per year than there should only be 10% tax for someone who makes $1 Million a year. Even with fair taxation the IRS will always exist. Fair taxation will not stop the cheaters. Lower income still means lower tax paid even in fair taxation.

    To the people who don't want to pay taxes:
    Why don't you just go ahead and pay out of pocket yourselves for all the things taxes pay for and benefit all people. Feel free to come up with the money needed on yor own to repair the roads, pay the teachers at the schools, keep criminals in prison. While you're at it, don't forget to save enough money to support your retirement and healthcare when you're old and sick and have no income. If you don't want to pay taxes then I feel no need to have the taxes I paid cover your medical care and retirement.


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