When applying for a mortgage, your mortgage loan originator will request income documentation, such as your federal tax returns. These documents are needed because they are required for most traditional mortgage loan products in order to accurately determine your qualifying income.
Most mortgage loan programs require that borrowers are not delinquent on any federal debt. Tax debt is one of, if not, the most common forms of delinquent federal debt. If you have back taxes due, you will need to get on a payment plan with the IRS or pay them in full before you can obtain a conventional mortgage loan.
Make sure the tax returns you provide are accurate and the most recent. This information is verified by pulling tax transcripts from the IRS or verifying a payment/refund was made from/deposited to your bank account.
Tax returns play a major role in certain qualifying income. For example, rental income, capital gains, and interest/dividend income are all determined by the amount claimed in your federal tax returns. Oftentimes, writing off income to reduce tax liability, while excellent to minimize your tax burden, will lower your qualifying income.
If your search has been taking a while and you find yourself preparing another year of taxes before going under contract on a new home, please consult with your mortgage loan officer. Filing a new year’s worth of taxes will have an impact on your qualifying income.
If you have any questions about how tax returns play a role in your qualifying, give us a call at (760)930-0569 to discuss with one of our Mortgage Loan Originators.
