Amending Tax Returns To Qualify For Mortgage Loan


This BLOG On Amending Tax Returns To Qualify For Mortgage Was UPDATED And PUBLISHED On November 17th, 2019

Amending Tax Returns To Qualify For Mortgage Loan
Gustan Cho Associates

Mortgage lenders require two years of tax returns from mortgage borrowers as well as dozens of other documents.

  • Two years tax returns are extremely important from self-employed mortgage loan applicants
  • Many self-employed mortgage loan borrowers use the loopholes in the tax code to write items off
  • Self-employed borrowers write as much as they can off so they can minimize their tax obligations and try to declare as little income as legally  possible
  • Declaring as little as possible by using tax write-offs is great in a sense where taxpayers don’t have to pay a lot of money to Uncle Sam
  • However, this often backfires for homebuyers who are planning in qualifying for a home loan
  • There are situations where people have written off more than they should have and have done it legally with the advice from an accountant or CPA
  • Amending tax returns to qualify for a mortgage is allowed
  • The newly amended tax returns to qualify for a mortgage can be used but there is always a catch

In this article, we will cover and discuss Amending Tax Returns To Qualify For Mortgage.

Tips In Amending Tax Returns To Qualify For Mortgage

Tips In Amending Tax Returns

Amending tax returns to qualify for mortgage is totally allowed and legal.

  • There are numerous reasons why people amend tax returns
  • Oversight is one of the most common reasons why tax filers would amend their income tax returns
  • Amending tax returns to qualify for mortgage can be done by amending tax returns to add deductions that may have been an oversight
  • This often gives taxpayers a refund
  • Or adding additional income and/or taking out deductions that taxpayers did not originally declare whereby tax liabilities increase more taxes are owed to the IRS
  • The Internal Revenue Service gives taxpayers up to 3 years to amend tax returns from the original filing date

Why Do Underwriters Require Income Tax Returns

Why Do Underwriters Require Income Tax Returns

Mortgage underwriters need tax returns to determine adjusted gross income in order to determine debt to income ratio in qualifying and approving a mortgage loan.

  • For self-employed borrowers, two years of tax returns are required
  • The way mortgage underwriters calculate income is off income tax returns is as follows: 
    • If older tax returns are lower than the most recent year of income, then the adjusted gross income is averaged over 24 months
    • If the borrower’s most current income tax return shows a lower adjusted gross income than the preceding year, then the lower most recent adjusted gross income is used
  • Borrowers who are a W-2 wage earner and have unreimbursed expenses deductions on income tax returns, then the unreimbursed expense deductions are subtracted from income
  • This is common for borrowers who are police officers and firefighters who get an allowance for uniforms and equipment and are able to write them off their income tax returns

Amended Income Tax Returns

Amended Income Tax Returns

Borrowers who are intending in applying for a mortgage loan and also are thinking about amending tax returns, they need to amend tax returns prior to applying for a mortgage loan.

  • Borrowers cannot amend tax returns during the mortgage approval process
  • Borrowers who are intending on removing deductions and increasing adjusted gross income on amended tax returns need to amend tax returns
  • Make sure to pay for the additional tax liability owed
  • It needs to be filed as soon as possible
  • Lenders will take amended tax returns and go off new adjusted gross income
  • In order for them to do that, borrowers need to provide underwriters with a copy of the canceled check to the IRS

4506T During Mortgage Process

4506T During Mortgage Process

The mortgage lender will need to verify income tax returns with the Internal Revenue Service.

  • Borrowers who just amended tax returns to qualify for mortgage to declare more income, it will take four to six weeks before the IRS will verify 4506T.
  • Borrowers can start the mortgage application process with an amended income tax return
  • However, cannot close on mortgage loan until the 4506T verifies the amended tax returns

Related> Why mortgage lenders want full tax returns

Related> Made a tax mistake?

  1. Rick Decker says

    Is there a way of getting an estimate how how much I’ll pay back when I amend my tax deductions? I had $13,000 in tax deductions/work expenses which shows I make less than I do and is hurting my ability to get a better home loan.


    1. Gustan Cho says

      The best advice I can give you is that you consult with your accountant.

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