Looking around for the right mortgage loan for you? Be prepared to give your lender genuine evidence of your income.
During the housing market heydays, mortgage lenders rarely ask borrowers for their income tax returns. Nowadays, however, you’d be hard pressed to find a lender that won’t require you to present your tax returns.
Why Lenders Ask for Your Income Tax Returns
It all comes down to verifying your taxable income sources. It’s a top priority for mortgage lenders to know exactly how much a potential borrower earns because they have to make certain that you’re financially capable of repaying your monthly mortgage payments on time. Telling them how much you earn just won’t cut it, even if you’re the most honest person alive on earth.
Why? Because when the real estate market was at its peak, plenty of mortgage lenders attracted borrowers, specifically those with inadequate or unconventional income sources, with “stated income” or “liar” mortgage loans. With these loans, borrowers could simply state their income, without having to show any proof whatsoever. As you could see, this isn’t the case these days due to stricter lending requirements. Bonneville Multifamily Capital, a provider of FHA multifamily loans, notes that investment properties, in particular, are subject to stricter tax regulations.
Tax Forms to Take Note of
When giving your lender your tax returns, you have to provide your complete, most recent tax return. Your complete income information could be found in the set of documents you submitted to the IRS (Internal Revenue Service). Your mortgage officer would review your returns to determine if anything’s suspicious. They verify that your W-2 matches your income.
Your mortgage lender would also have to verify your reported income by getting your tax records from the IRS directly. This means that you’ll need to sign form 4506-T to give the lender access to your tax records.
It doesn’t matter whether you’re applying for a conventional mortgage loan or an FHA multifamily loan. You have to submit your income tax returns to your mortgage lender for income verification. If they find that the numbers match the information in your application, then you’re one step closer to securing your mortgage; otherwise, they would investigate further for potential loan fraud or other income irregularities.