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Tax Return Analysis Workshop

Online Course: ID# 1004763
Price: $395.00
About This Course:

What Are The Major Components Of Performing A Tax Return Analysis?

Performing a tax return analysis for a mortgage underwriter involves examining various components to assess the borrower's financial stability and ability to repay the loan. Here are the major components:
  • Income Verification:
    Reviewing the borrower's income sources from tax returns, including wages, salary, bonuses, self-employment income, rental income, investment income, etc. This involves examining Form W-2 for wage earners, Form 1099 for contractors or self-employed individuals, and Schedule C or Schedule E for business or rental income.
  • Income Calculation:
    Calculating the borrower's gross income by summing up all eligible income sources and deducting any applicable expenses or losses.
  • Stability of Income:
    Assessing the stability and consistency of the borrower's income over the past few years. This involves reviewing multiple years of tax returns to identify any fluctuations or trends in income.
  • Employment Verification:
    Verifying the borrower's employment status and history, including any gaps in employment. This can be done through employment verification forms, pay stubs, or direct communication with the borrower's employer.
  • Tax Deductions and Credits:
    Identifying any tax deductions or credits claimed by the borrower, such as mortgage interest deduction, property tax deduction, student loan interest deduction, etc. These deductions can affect the borrower's taxable income and, consequently, their ability to qualify for a mortgage.
  • Debt-to-Income Ratio (DTI):
    Calculating the borrower's debt-to-income ratio by comparing their total monthly debt payments to their gross monthly income. Tax returns provide essential information for determining both income and certain types of debt obligations.
  • Asset Verification:
    Although not directly related to tax returns, mortgage underwriters may also review the borrower's asset information to ensure they have sufficient funds for down payment, closing costs, and reserves. Assets may be disclosed in tax returns but are more commonly verified through bank statements.
  • Fraud Detection:
    Scrutinizing tax returns for any signs of fraud or misrepresentation, such as inconsistencies between reported income and other financial documents, forged signatures, or falsified information.
  • Special Considerations:
    Depending on the borrower's situation, there may be additional considerations such as alimony or child support income, income from investments, retirement accounts, or other non-traditional sources. These need to be properly documented and analyzed.
  • Compliance:
    Ensuring compliance with regulatory requirements and underwriting guidelines set by investors or government-sponsored entities such as Fannie Mae, Freddie Mac, FHA, or VA.
By thoroughly examining these components, mortgage underwriters can make informed decisions about the borrower's creditworthiness and the risk associated with extending a mortgage loan.

What Are The Common Errors Of A Tax Return Analysis?

Mortgage underwriters typically analyze tax returns to assess a borrower's income stability and capacity to repay the loan. Common errors that underwriters may encounter during tax return analysis include:
  • Inconsistent Income Reporting:
    Discrepancies between income reported on tax returns and income stated on other financial documents, such as W-2 forms or pay stubs, can raise red flags. Underwriters should ensure that all income sources are accurately reflected and consistent across documents.
  • Failure to Adjust for Non-Recurring Income:
    Underwriters should distinguish between regular, recurring income and one-time or irregular income. Failing to adjust for non-recurring income can lead to an overestimation of the borrower's income stability.
  • Unexplained Fluctuations in Income:
    Significant fluctuations in income from year to year without adequate explanation may raise concerns about the borrower's ability to maintain consistent earnings. Underwriters should investigate any irregularities and consider their impact on the borrower's financial situation.
  • Misclassification of Income:
    Income sources may be misclassified, leading to incorrect calculations of the borrower's total income. Underwriters should carefully review tax returns to ensure that all income is properly categorized and included in the analysis.
  • Overlooking Deductions or Expenses:
    Underwriters should consider all eligible deductions and expenses when calculating the borrower's net income. Failing to account for deductible expenses can result in an overestimation of the borrower's available income.
  • Incomplete or Inaccurate Documentation:
    Missing or inaccurate documentation can hinder the underwriting process and lead to errors in income calculation. Underwriters should verify that all necessary tax documents, such as tax returns and supporting schedules, are complete and accurate.
  • Failure to Consider Self-Employment Income:
    Self-employed borrowers may have more complex tax returns, including additional schedules and forms. Underwriters should carefully review self-employment income and consider factors such as business expenses and depreciation when calculating the borrower's overall income.
  • Ignoring Non-Taxable Income:
    Certain types of income, such as income from nontaxable sources like child support or tax-exempt interest, may not be reflected on tax returns. Underwriters should be aware of these sources of income and consider them when assessing the borrower's financial situation.
  • Incorrect Calculation of Debt-to-Income Ratio (DTI):
    Errors in calculating the borrower's DTI ratio, which compares their monthly debt payments to their gross monthly income, can impact the underwriting decision. Underwriters should accurately calculate the DTI ratio based on the borrower's verified income and debt obligations.
  • Failure to Verify Tax Return Authenticity:
    Underwriters should verify the authenticity of tax returns by obtaining transcripts directly from the IRS or through other reliable means. Failure to verify tax return authenticity can result in fraudulent or inaccurate information being used in the underwriting process.
To mitigate these errors, make sure to get training for how to review and verify tax documents.

What You'll Learn From This Course

Our "Tax Return Analysis Workshop" course is an in-depth, instructor-led online program that provides formal instruction on personal and business tax return analysis.

It is designed to teach the fundamentals of the tax return analysis to new and seasoned mortgage processors and underwriters alike.

Course Outline

In this course you'll learn about tax return form and schedules, calculation formulas, and more, including:
  • Fannie Mae Cash Flow Analysis Form 1084
  • Fannie Mae Comparative Income Analysis Form 1088
  • Self-employment defined
  • Profit & loss statement and balance sheet review
  • Self-employment case study and practice exercises
Upon finishing the course you will receive a Certificate of Completion and skills required to be successful in the mortgage industry.

Anticipated Time To Complete

This online course will take approximately six hours to complete. You do not have to complete the course in one sitting - there are bookmarks in

Top FAQs

Tax return analysis for loans primarily handles income verification. Also, as part of the loan approval process, lenders usually also ask for proof of employment and salary, as well as retirement holdings. For self-employed borrowers, they also may have to provide copies of their P& statements and other documents.
A tax return analysis typically involves looking at a couple of years of tax returns to verify that the potential borrower has the income, investments, and holdings to pay back the loan
Yes, there are FNMA and other forms, as well as training classes, to help loan processors conduct their review.
a Debt-To-Income (DTI) ratio is the percentage of a potential borrower's monthly mortgage payment and other debt responsibilities versus income. Generally speaking, a DTI over 40% is a potential red flag with regard to loan approval.
Tax Return Analysis Workshop
Price: $395.00
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