I'm not self employed, why do you need my tax returns for a mortgage?

Mortgage and Lending with Amerifirst Financial, Inc.

A question that comes up quite often by potential borrowers is "I'm not self employed, why do you need my tax returns for a mortgage?" Now this may seem like a silly question to seasoned real estate and mortgage veterans. But the average home buyer may not realize what mortgage lenders look for when reviewing and analyzing tax returns. 

tax return

We all know that self employed borrowers must submit tax returns when applying for a loan as that is the best and most accepted method for verifying their income. But there are many other reasons why lenders and more importantly underwriters require tax returns to be reviewed.

Even if you are a salaried W-2 employee, there are things that may show up on a tax return that could impact your qualifying income. For instance:

  • Unreimbursed business expenses such as union dues, required uniforms, mileage, etc. are all examples of things that the employee must pay and is not reimbursed by their employer. Many times 100% commission employees such as loan officers will write off all their unreimbursed expenses which will decrease their qualifying income.
  • Rental properties or 2nd homes. Lenders must determine if borrowers own rental properties or other real estate and whether or not those properties have positive or negative cash flow. Some borrowers don't disclose rentals on their application if they don't owe anything on it and they don't need the rental income to qualify. But the lender wants to know any and all real estate owned by a borrower.
  • Capital Gains or Losses. If there are on-going gains or losses this could positively or negatively impact a borrower's income.
  • To verify other sources of income such as interest/dividend, alimony or retirement income.
  • Ensure no self employment when none was disclosed. Again, some borrowers may run a side business or be involved in a partnership in addition to their full time job. The borrower may think this is insignificant as there is not much income being declared, if any, but this business may be a way for the borrower to write off some expenses and therefore lower their taxable income. This is great for lowering taxable income and reducing federal and state taxes but it could also lower qualifying income for the loan.
  • Alimony paid. A borrower may fail to report that they pay alimony but it may show up on their tax return as a way to lower their taxable income.

These are just some reasons why lenders need to review borrowers' tax returns. So the next time you're asked why does my lender need my tax returns, you'll be able to provide your buyer with a good answer.



Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Markita Woods NMLS#196099 01/22/2011 02:32 AM
  2. Kevin Kelly 01/22/2011 11:31 AM
  3. Devona Garrigus 01/23/2011 01:52 PM
31 Days of January - New Years Resolution
tax returns
mortgage qualifying
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Markita Woods NMLS#196099
Hancock Mortgage Partners, LLC - Woodbridge, VA
Queen of Mortgages - FHA, VA, Conventional, USDA

Joe thanks for clarifying this information. I wrote a similiar post Taxes and Buying a Home In Woodbridge, Va but your is more detailed and worthy of a reblog.

Jan 21, 2011 12:59 PM #12
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M
You are so right that many borrowers don't understand why their tax returns are needed. This is a clear explanation of several reasons.
Jan 21, 2011 02:58 PM #13
Vickie McCartney
Maverick Realty - Owensboro, KY
Broker, Real Estate Agent Owensboro KY

Hi Joe~  Almost all of the loan officers I have worked with have always asked for the last two years tax returns no matter what kind of loan they were doing.  It makes total sense to me.

Jan 21, 2011 03:26 PM #14
Tammie White
(615) 495-0752 or www.FranklinHomesRealty.com - Franklin, TN
Franklin Homes Realty LLC, Franklin TN

My daughter is a senior in high school and we just completed the FAFSA. Guess what, we had to file our tax return to do that. So what does college financial aid have to do with my tax return? A lot.

Jan 21, 2011 03:59 PM #15
Tiffany Taylor
Platinum Funding Group, Inc.NMLS-243033 - Irvine, CA
Platinum Funding Group

Hey Joe,

As a fellow Broker, it's so nice to see that we have finally weeded out all of the "fly by night" loan officers... Now we are left with informed professionals like yourself that fullu understand underwriting guidelines...

Thank you;-)

Jan 21, 2011 03:59 PM #16
Ryan Case
SCA Real Estate - Anaheim, CA

Tax returns are needed for loans regardless of how you are paid, correct?

Jan 21, 2011 05:15 PM #17
Bernadine Hunter, SFR, ACRE
Keller Williams Greater Columbus Realty - Blacklick, OH
"Finding Solution to Your Real Estate Needs"

Great explanation on the need for tax returns. I just thought that it was a given. I know mine were required as far back as 2002.

Jan 21, 2011 09:43 PM #18
Carol Zingone
Berkshire Hathaway Home Services Florida Network Realty - Jacksonville Beach, FL
Global Realtor in Jax Beach, FL - ABR, CRS, CIPS

Good post - we, in the business on a daily basis, totally understand WHY, but need to help the people who are not in the biz daily understand the ins and outs of what we do. h

Jan 22, 2011 12:09 AM #19
Harry F. D'Elia
Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

The times have changed to disclose disclose disclose. The banks are checking to ensure that you filed ones tax returns. They have turned LOs into junior auditors.

Jan 22, 2011 01:42 AM #20
Bea Lueck
Coldwell Banker Rox Realty - Casa Grande, AZ

As far back as 2001, I always questioned why my lender required tax returns on the investment properties we purchased.  Oh wait - because she was a great mortgage broker and qualified us with something more than a pulse! 

Jan 22, 2011 01:44 AM #21
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Joe, good explanation for why tax returns are needed. Mortgage companies leave no stone unturned.

Jan 22, 2011 01:46 AM #22
Karen Feltman
Cedar Rapids/Iowa City, IA Lepic-Kroeger REALTORS - Cedar Rapids, IA
Relocation Specialist

This is a good explanation of why tax returns are necessary for all buyers...especially in today's market.  Thank you for the information.

Jan 22, 2011 03:15 AM #23
Joe Reed
Amerifirst Financial, Inc. - Scottsdale, AZ
Loans for Short Sales and Investors

Yes, we must get tax returns on all loans no matter the type of income earned. Again it's not always to verify the income but to make sure there no losses being taken in other areas like rental income, capital losses, or other businesses that are not disclosed on the application.

Unfortunately there has been so much fraud in the past 5-10 years that mortgage investors have no choice but to put every borrower under the microscope to ensure all facts are accurate on an application.

Jan 22, 2011 04:24 AM #24
Kevin Kueneke
Mann Mortgage, LLC - Encinitas, CA
San Diego Mortgage Banker

Joe - great post.  I "lost" a potential client a month ago when I asked for their tax returns (the client owns 2 other properties and the mortgages are on his credit report). 

He claimed that another lender did not need them.  Guess what, the other lender finally required them 2 days before the closing and then said that he no longer qualified!  He came back to me, we found a co-signer (FHA kiddie condo) and closed the deal.

If a potential client will not provide what I need, then they do not get to pass Go.  Taking an extra 15 minutes at the beginning can save days and weeks of nightmares later.  Simple as that.

Jan 22, 2011 05:11 AM #25
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ


This is a great post because folks usually don't balk when the understand the reasons.  You spell them out very clearly.  Thanks!

Jan 22, 2011 05:26 AM #26
Jacquie Cliff
Champions Real Estate Services - Lynnwood, WA - Lynnwood, WA
- Real Estate and Short Sale Expert

This is definitely a reaction to the bubble popping.  I wonder how many loans got done on fake W-2s?

Jan 22, 2011 08:15 AM #27
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Joe, I completely understand the statement and the INVASION OF PRIVACY now by the mortgage lenders. Obviously in the past there was no need for W-2 employees to fork over 1040's. Times change. People STILL balk with the reasons.

Jan 22, 2011 09:24 AM #28
Laura Forman
National Realty of Brevard www.LauraSellsBrevard.com - Melbourne, FL
Your Brevard Premier Property Specialist

Thanks for the post - I learned something new.

Jan 22, 2011 10:02 AM #29
Kevin Kelly
Licensed Loan Originator - Phoenix, AZ
Amerifirst Financial Inc.

Great post Joe!  Very detailed an important information. 

Definitely worthy of a re-blog.  Congrats on the feature!


All the best!

Jan 22, 2011 11:30 AM #30
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Joe.. money was given to easily and freely in the past... In the early to late 90's, tax returns were usually asked for anyhow... we got away from that and now it's a requirement in many cases. I know home buyers don't like this... but do you think us loan officers like getting more paper work again? lol Not me... good post with some good reasons.

jeff belonger

Jan 22, 2011 01:29 PM #31
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