Beware of “2106 Expenses” and Rookie Loan Officers

2106 Expenses are expenses that salaried/W2 employees can take against their income if the expenses are considered “trade or business related.” These expenses can include items for cars, cell phones, clothing, travel, entertainment, etc.

These are not to be confused with the expenses that a self-employed or 1099 contractor shows on a Schedule C.

We bring up 2106 expenses b/c many rookie loan officers miss them, and therefore over-estimate income in their pre-qualification analyses. We recently got a file that died at a major bank b/c the loan officer completely missed the 2106 expenses and relied solely on the borrower’s W2s and pay-stubs (without digging into the tax returns). The 2106 expenses pushed debt ratios too high.

There are several lessons here: (1) 2106 expenses are more common than people realize; (2) good loan officers should always know to dig into tax returns and never just rely on W2s and pay-stubs; and (3) under-trained loan officers put everyone at risk.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646