Is this legal? Money lending question.

[Ahu_Ha]

Thanks for the responses.

[Capa]

With “stated income” loans, Tom could simply state that he received a 25,000/yr salary, offer no proof, and get the loan. These loans have basically disappeared. They were options for people with credit scores of 680 or so and up.

Now, you pretty much have to show any income for 2 years. For instance, if you take on a part time job earning an additional 1200/monthly to list the income on a mortgage app, you must show that you have been doing it for 2 years. Any bonuses that you wish to count towards your income must be shown to be active and reoccurring for 2 years as well. All of this has started with the the tightening of lending practices to prevent gaming the system in many of the ways listed by various posters above.

Now, the standards are so tight, that if you were late on a payment 10 months ago, you cannot refinance your home (you must be current for 1 year minimum).

There may still be some lenders with looser underwriting practices, but for the most part Tom is out of luck now. If he waits a few more months, the home will probably sell for 250,000 anyway.

[Acsenray]

When I last obtained a mortgage, they said they would not consider income from a job that I had for less than three years and would not consider assets younger than three months. So the plan wouldn’t work unless Tom’s dad could show that he had employed Tom for at least three years.

[Gfactor]

It depends on what sort of loan one is applying for. For an FHA mortgage, for example:

Part-time and employment income from a second job may be used in qualifying the borrower, if the borrower can document that he or she has held the job uninterrupted for the last two years.

http://www.huduser.org/Publications/PDF/hisp_homeown3.pdf

but, as I pointed out, employment with a family business adds additional complications:

EMPLOYMENT BY FAMILY-OWNED BUSINESSES: Borrowers employed by businesses owned by family members are required to provide additional income documentation. These borrowers must provide the normal verification of employment and pay stubs, and evidence that he or she is not an owner of the business. This may include copies of the borrower’s signed personal tax returns or a signed copy of the corporate tax return showing ownership percentages.

http://www.fhainfo.com/incomeguidelines2.htm

VA is similar:

Generally, such income cannot be considered stable and reliable unless it has continued (and is verified) for two years.

To include income from these sources in effective income:

• the income must be regular and predictable, and
• there must be a reasonable likelihood that it will continue in the foreseeable future based oni ts compatibility with the hours of duty and other work conditions of the applicant’s primary job, and
• how long the applicant has been employed under such arrangement.

The lender may use this income, if it is not eligible for inclusion in effective income, but is verified for at least 12 months, to offset debts of 10 to 24 months duration.  Include an explanation.

http://www.warms.vba.va.gov/pam26_7.html