(Closed) Any servers who have bought/are buying a house… can I have your input?

posted 6 years ago in Home
Post # 3
Member
719 posts
Busy bee
  • Wedding: August 2014 - South Bonson Pier & Community Centre

@cupcakebride2013:  Are you asking if your ‘income’ should be counted as tips included? we haven’t gone for mortgage approval yet, but our taxes always include tips, since my restaurant got audited a few years ago and a bunch of the service staff owed tons of taxes for failing to declare properly. so I think that should be included as your income, too. i think a second opinion is always a good idea.

Post # 5
Member
110 posts
Blushing bee
  • Wedding: March 2010

You’d have to report the tips, either through your work or on your taxes as “Other unreported cash tips” to have them count.

I think you’re approaching this wrong though. Sit down and figure out what you can ACTUALLY afford, both as a monthly payment and based on putting at least 20% down so you’re not paying PMI. Often the amounts that they’ll preapprove you for are well over that, it’s part of what caused the housing crisis.

Post # 7
Member
110 posts
Blushing bee
  • Wedding: March 2010

@cupcakebride2013:  I haven’t heard that about PMI anywhere and I’m a personal finance nerd. Where have you heard that?

Post # 9
Member
7311 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

The PMI changes are only for FHA-backed loans. Go conventional and negotiate the best deal for yourself. Yes, you will have to bring more of your own money to the table, but it’s worth it to not deal with the ridic FHA requirements. You can go conventional with 5% down.

OP- Your lender probably did not include tips in the calculation because they are subject to significant variability. Have your past 3-4 years of tax returns showed consistent earnings for you? If so, you may want to shop around to a few more lenders and see if any of them would be willing to consider your tips in the equation.

Shopping around does not hurt as long as all credit pulls are done within a single 30 day window. If done within that 30 day window, they should be lumped together as a single hard pull on your report in terms of the credit hit that you will take. I think it’s a 3 point deduction per hard pull. But if you want to be extra sure, your lender that already pulled your credit will be sending you a copy of the credit report and score that he/she pulled. You can always take that copy with you to meet with other lenders. Then they can use the copy you are providing to give you more firm information about what they could offer you without having to do another pull.

 

Edit: IMO, it’s best to get approved for a home based on a single salary. That way, if one of you loses a job or takes a significant pay cut, you’ll still be able to stay afloat.

Post # 10
Member
3885 posts
Honey bee
  • Wedding: September 2011

The problem with having your cash tips count towards the qualification levels is that it is very hard to document and predict them; it is not an actual salary negotiated between you and your employer but rather an alternate income stream between you and the customers. As such, lenders often do not include it because it is not reliable or guaranteed. While any buyer always has the potential to lose their job and have no income, the lenders often see cash income as riskier— easier to fudge the numbers and bank statements, harder to guarantee it will keep coming in.  A lot of self-employed folks, especially those with new businesses, face the same hurdles.

The alternative is to do what is called a “stated income” which means the lender just takes your word at it, and while this can definitely increase the amount for which you qualify, it also increases your interest charges. It is usually a significant increase— a friend of mine opened a very successful restaurant/bar and is making a very nice profit but had to go stated income, and his interest is over 10% while the rest of us are getting 3-4% notes.

If you have declared your tips fully on your tax returns (something most servers I know, don’t do) then you may be able to submit a few years’ of returns as supporting evidence and maybe qualify for a larger loan, but I would not count on that helping unless you have declared more than what is on your W2’s, and have at least 4-5 years of returns to submit AND your tip income puts you into a higher income range (i.e. long-term professional waiters working in the 5-star places).

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