DOCUMENTING INCOME FOR YOUR MORTGAGE IS ALL ABOUT THE DETAILS

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Are You Being Asked For Tax Returns?

Anyone who has recently applied for a mortgage knows the importance of documenting income. This is one of the most critical pieces of information that mortgage lenders require during the application process. But if you have not applied for a mortgage either recently or perhaps ever, you may not realize how specific some lenders are with their income documentation requirements.  

It’s More than Just Proof of a Paycheck

If you are in the process of applying or a mortgage, or if you think you will be applying for a mortgage in the near future, you should be aware that mortgage lenders will most likely require more than a few paystubs as your proof of income. More important to mortgage lenders than verification that you received a paycheck last month is proof that your earnings are stable and your income is likely to continue on a consistent basis well into the foreseeable future.

Items You Will Have to Provide  

Different mortgage lenders have different specific requirements, but most will ask you to submit at least a few recent paystubs and the most recent W-2 you received from your employer. But in addition to paystubs and your W-2, you will also be required to provide your federal tax returns for the last couple of years. In addition to getting  those returns from you, the lender will likely request copies directly from the IRS. This can be accomplished by asking you to complete and sign a form allowing the mortgage lender to obtain official IRS copies. If there is no significant proof on your tax returns that you have been working steadily in the same job or in the same professional field for at least two years, you may have a difficult time qualifying for a mortgage. It is much harder to obtain a mortgage nowadays than it was several years ago. Mortgage companies want to make sure you are working in a stable job before they are willing to take the risk of loaning you a significant amount of money. Therefore, you will have to prove a consistent work history.

Are you Self-Employed?

If you are self-employed, you will probably have to prove your income via your federal tax returns. In some situations, mortgage lenders will require that you submit a profit and loss statement that gives details of how much your business typically earns and loses each month. If you have not been self-employed in the same industry for at least two years, it may be difficult for you to qualify for an FHA, Freddie Mac or Fannie Mae mortgage. Self-employed individuals seeking a mortgage may be scrutinized by mortgage lenders even more carefully than people who are employed by an established business. One thing that will help self-employed people with mortgage qualification is a high credit score. Additionally, having significant cash on hand is beneficial. If you know someone who has been employed consistently for at least two years and is willing to co-sign on the loan, your mortgage application will also be considered more favorably by lenders.irs-1040-individual-tax-return-form-being-filled-out

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