Investor's Loan Guide by Graham W. Parham

For those borrowers who have a small interest in certain companies as
part of their portfolio typically will receive a tax statement at the end of the
year referred to as a K-1. The problem with K1’s is that they always show up
much later than the required W-2s or 1099s. Because of that fact, this will delay
the filing of your tax return. Once all the K1’s have been accounted for, the
information is filtered into your tax returns typically through Schedule E. The
problem with that is you could probably have 10 to 20 different small K1’s from
portfolio investments which attributed to income for that year. In today’s
lending world the underwriter will want to see every K-1. Yes, every K-1! This is
just part of the accountability that originators have to go through to make sure
there’s no additional liability associated to each of the K1’s through the
percent of ownership. If any of the K1's represents the borrower owning 25% or
more of the business, then yes we have to get that company’s tax returns as
well.
As you can see for most borrowers who are self-employed, there’s a lot
of moving parts that have to be accounted for. Lenders asking for this type of
information will drive the impatient borrower crazy. A piece of advice: just be
prepared and be patient.
Social Security and Retirement/Pension Income
Yes, many people that are retired still want to invest their money in real
estate. Just because they are on a fixed income does not mean they cannot
qualify for an investment property loan. It’s very simple. We use the same math
for all borrowers by dividing their liabilities into their income to make sure they
fit the qualifying ratios.
Social Security recipients are sent an award letter every January outlining
their upcoming year’s payment contribution. All we need from the borrower is
the award letter and two months bank statements showing the direct deposit
of these benefits. We also will gross up their monthly income by 125% to show
a higher gross income. This is a benefit that has been recognized in the industry
for years but also applies to child support and alimony. When validating
retirement and pension income, we obtain a copy of the document provided
by the company issuing these funds showing that the borrower will receive a
continuance of these funds for at least 3+ years. Most of the time these funds
are direct deposit, so two months bank statements showing these deposits will
be enough for the underwriter to make a decision.
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