Unreimbursed Business Expenses (UBE) is one of the newest issues to trip people up on mortgage applications. Fannie Mae and Freddie Mac have really cracked down on enforcing that lenders deduct any UBE from a mortgage borrower’s income. UBE are expenses that an employee pays that their employer does not pay and also does not reimburse them for. So if you tell me you earn $100,000 a year, but you have $5,000 in UBE, then I have to qualify you on the loan as if you only earn $95,000 a year.
From a tax standpoint, unreimbursed business expenses can be counted as miscellaneous deductions if you itemize on Schedule A. But these deductions don’t count until you exceed 2% of your adjusted gross income (AGI). If you have an AGI of $100,000 then you must have expenses of more than $2,000 before the expenses are deductible. And when you exceed the 2% only the amount over that counts. So in the above example if you had $5,000 in UBE you’d get a $3,000 deduction, because you had $3,000 over the 2% of your AGI in UBE. I am not even sure I can follow that alphabet soup!
UBE might consist of computer equipment you buy on your own and use for work, travel expenses you pay for on your own, home office equipment your employer does not reimburse you for, and much more.
So UBE are great to get a tax break. But it makes it harder to qualify for a mortgage even if you are earning a salary. I have had UBE alter more than a few clients homebuying plans. Talk to an experienced mortgage lender about unreimbursed business expenses in advance of qualifying for a loan!