Amending Tax Returns To Qualify For Mortgage Loan

This BLOG On Amending Tax Returns To Qualify For Mortgage Was UPDATED On August 14, 2017

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

  • Two years tax returns is 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 so they can minimize their tax obligations and try to declare as little as legally  possible. 
  • Declaring as little as possible by using tax write offs is great in a sense where tax payers don’t have to pay a lot of money to Uncle Sam.
  • However, this often backfires for home buyers who are planning in qualifying for a mortgage 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 mortgage is allowed.
  • The new amended tax returns to qualify for mortgage can be used but there is always a catch.

Tips In Amending Tax Returns To Qualify For Mortgage

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

  • There are numerous reasons why people amend tax returns. 
  • Oversight are 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 tax payers a refund.
  • Or adding additional income and/or taking out deductions that tax payers did not originally declare whereby tax liabilities increase more taxes are owe to the IRS. 
  • The Internal Revenue Service gives tax payers up to 3 years to amend tax returns from the original filing date.

Why Do Underwriters Require Income Tax Returns

Mortgage loan underwriters need your 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 borrowers 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 is subtracted from income. 
  • This is common for mortgage loan borrowers who are police officers and fire fighters who get an allowance for uniforms and equipment and are able to write them off their 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.

  • Mortgage 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 and make sure to pay for the additional tax liability owed.
  • It need to be filed as soon as possible. 
  • Mortgage lenders will take amended tax returns and go off new adjusted gross income.
  • In order for them to do that, borrowers need to provide the mortgage lender with a copy of the canceled check to the IRS.

4506T During Mortgage Process

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?

Related> What will happen if I ammend my tax returns?

Related> Standard deductions versus Itemized deductions

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

2 Comments

  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.

    Rick