Tax Returns and Mortgages

Do you need to see my tax returns before I can get a mortgage?  That’s a common question we are asked by clients. 

Here are the rules for when a lender is required to collect your tax returns.

If you are a W2 employee (not self-employed), we do not need to see your tax returns unless…

If you are a W2 employee and you also have rental income that you need to count to qualify for a mortgage, then we do need to see your tax returns.  That’s because rental income is calculated from the income you declare on your taxes.  

If you are self-employed, we need to see your tax returns.  Again, that’s because self-employment income is calculated from the income you declare when you file your taxes.

How many years of tax returns do we need if you are self-employed?  That depends on how long you have had your business.  If you have had the same business for longer than 5 years, we generally only need to see one year of taxes.  If you have had the same business for less than 5 years, we generally need to see two years of tax returns.

One thing to note if you are self-employed is if you change the type of business entity you have – say from a sole-proprietor to an LLC, and you have been in business under the name of the same entity (in this case, the LLC) for less than 5 years, we will need two years of tax returns, rather than just one year.  That’s because when you change entities (sole-proprietor to LLC, LLC to sole-proprietor, etc.), you have legally changed your business, even though the only thing you may have changed is the type of entity under which you operate your business.

Calculating self-employment income is easy to do for a lender, provided they know what they are doing.  It is almost impossible for you to do yourself, however.  There are countless guidelines governing how self-employment income is calculated, and the only way to know it’s being done correctly is to deal with a lender who has the experience to know the rules.  

Regardless of whether you have rental income, self-employment income, or W2 income, contact us when you need a mortgage to purchase a house or refinance an existing mortgage.  We will take care of you.