Lenders Require Tax Returns For Mortgage Qualification
Mortgage lenders require two years tax returns for mortgage qualification as well as W-2’s for mortgage loan borrowers to determine their assets, income, and liabilities. Mortgage lenders rely on the W-2’s from the past two years plus the mortgage borrower’s current pay check stubs in determining monthly gross income. However, for those mortgage loan borrowers who are self employed or have their own businesses, mortgage lenders will need to rely the borrower’s monthly income solely from tax returns.
Two Years Tax Returns for Mortgage Qualification Required for Self Employed Borrowers
The way mortgage lenders determine income for those who do not have W-2’s and are self employed or own their own businesses is by taking the two prior year’s of income from their tax returns and averaging them. Depreciation can be added as additional income. With this annual average, it is divided by 12 months to yield the borrower’s monthly income.
Many self employed or business owners file tax extensions. So what happens if a borrower filed a tax extension for 2012 and want to purchase a home and needs a mortgage. The mortgage lender will need a copy of the 2012 tax extension and need 2010 and 2011 tax returns.
Underwriters Average Two Years Tax Returns for Mortgage Qualification
What happens if the mortgage loan borrower needs higher income and needs to file 2012 tax returns that has currently has a tax extension? A mortgage loan borrower can file his tax returns for 2012 which has an extension and use the average of the 2011 and 2012 tax returns for mortgage qualification but the mortgage lender needs to verify that the tax returns have been filed via IRS form 4056. It normally takes 6 to 8 weeks to be able to verify that from the IRS. If you are in this situation, contact me at www.gustancho.com and I have options for you. Depending on your lender, a CPA letter can be sufficient or you may have to go to your local or regional IRS office and get your tax returns stamped by an IRS official. The mortgage lender might also require you to provide a copy of the cancelled check that you have submitted with your 2012 IRS tax returns.
Ammeding Tax Returns for Mortgage Qualification
What happens if I ammend my tax returns for mortgage qualification? This is a common practice with many self employed and business owners who have declared very little income and want to ammend their tax returns for mortgage qualification. Anyone can ammend their income for mortgage qualification but needs to be legitimate. If you want to write less off and get the advise from your CPA that you can legally declare more income on your tax returns for mortgage qualification, you can do that and pay more taxes. However, there is a six month waiting period after a tax return has been ammended for a mortgage lender to take your tax returns for mortgage qualification.
What if I ammend my tax returns after I get the mortgage? If you going to ammend your tax returns after you have closed on your home loan to reflect less income, there could be red flags raised. If you solely ammended your tax returns for the purpose of just obtaining a mortgage loan, it could possibly be considered mortgage fraud. However, if it was due to an honest mistake that can be documented and was legal, than there should not be a problem. I am not an accountant nor tax attorney so I recommend you seek the advise of a tax professional. I do want to warn folks that it is not worth ammending tax returns for mortgage qualification if the figures are not correct and you are planning on re-ammending them again after closing your mortgage loan.