Why is my Mortgage Lender asking for 2 Years complete Tax Returns ?

Mortgage and Lending with Island Lending Hawaii, LLC | Equal Housing Lender | NMLS 312250 NMLS# 312260 / 1460208

Sometimes I run into clients that are telling me " Why do I need to show you all my Personal information " ? Did I not give you egnove paperwork justifying my income ?  This Question is quite common and in many ways I agree to their concerns of disclosing personal information. 

Due to the recent housing crisis, mortgage lenders are now examining individual’s creditworthiness more carefully than ever before. This means that lenders request a lot of personal and financial information from potential borrowers, including tax returns.

A mortgage lender is well within their rights to request that you provide them with your tax returns. In fact, the lender may refuse to service you if you do not furnish this or equivalent documentation. This can be problematic for borrowers who do not have tax returns or whose tax returns do not adequately reflect their income position.


What documentation do I need to provide to a mortgage lender?

In order to approve you for a mortgage loan, a lender will look for a full representation of your financial position. Your latest tax return is only one of the documents that the lender will want to look at.

Many mortgage lenders will request the check stubs from your last several paychecks. They will also look at bank account statements, retirement funds, investments, and other assets.

If you have a non-traditional source of income, such as a cash business or a consulting firm that might have fluctuating receipts, it can be especially difficult to prove your income to a mortgage lender. In this case, you may provide alternative documentation such as proof of deposits.

Why does a mortgage lender need my tax returns and other financial documents?

Prior to and during the housing boom of the mid-2000s, tax returns were not frequently requested before mortgages were issued. In fact, there were many so-called no doc loans, in which lenders did not request any documentation or verification of income prior to granting a loan.

This led to thousands and thousands of borrowers being offered larger loans than they could afford to repay. As a result, there was a bust in the housing market and unprecedented foreclosure rates. Since this crisis, lenders have dramatically tightened their requirements for mortgage. This includes requiring income documentation, such as tax returns.

What will a mortgage lender do with my tax returns and financial documents?

A mortgage lender will analyze your tax returns and other financial documents to determine your overall creditworthiness and ability to repay your mortgage. The lender will use your employment and income history to determine the amount of money that they can safely extend to you as a loan.

Generally, a lender will look to offer a loan amount that will result in a monthly payment that is no more than one third of the borrower’s monthly income. A tax return can be an excellent way to provide the lender with a reference of your gross income in order to make this calculation.

Besides looking at the amount that they want to loan you, the lender will use your financial information to validate how creditworthy you are and how likely you are to default on a loan. Factors that will influence these decisions will include your credit score and the amount of savings and investments that you have.

Is there any way to avoid providing my tax returns to a mortgage lender?

Some borrowers may not want to, or may not be able to, furnish their lender with their tax returns. For example, if a borrower has recently rejoined the workforce or made a major career change, historical tax return documents may not reflect an accurate picture of the borrower’s income potential.

It is possible to get a loan without providing a mortgage lender with tax return documentation. This may be helpful for borrowers who are just starting their career out of college or who have just taken a job after having been out of work for several years.

However, these loans are more difficult than a traditional loan. Not every lender may offer them and they may have more restrictions or higher interest rates than other loans. If you are interested in this type of loan, a good first step is to talk to an experienced loan officer who can keep you apprised of all of your options.

How do I show a mortgage lender income that does not appear on my tax returns?

New sources of income or those that do not appear on tax returns can be difficult to prove to mortgage lenders. One option is to use pay stubs or other income verification documentation to show current income as opposed to historical earnings.

Posted by

George Thoma     | NMLS 312260

Branch Manager  | Island Lending Hawaii LLC . | NMLS 1460208 

Phone: 808.357.9791 | Fax:  808.441.5341

Email: gthoma@ilhillc.comMy Website 


33 N. Market Street, Wailuku, Hi 96793


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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale
George, buyers have many questions - for realtors(r) and lenders. This is one of the most common question I have seen - and very nicely answered by you in this post.
Jul 05, 2012 03:26 PM #1
Kalene Bagwell
Realty Executives Of Kansas City - Blue Springs, MO
Realtor - Selling Blue Springs - Kansas City Metro

George,  I don't think most of my clients mind providing the documentation required. I do think they get frustrated when they go into underwriting a week before closing and then they are suddenly hit with a daily list of documents the underwriter wants them to provide before full approval. Why don't loan officers and processors anticipate these documents and ask for them at the beginning of the loan process so the underwriter doesn't have to?

Jul 05, 2012 03:28 PM #2

i need some advice.
i am abt getting a loan and the bank asking for my return. but looking at my return i have a good income but a schedule was created on my tax which actually dropped my AGI. can that be a problem?

Feb 06, 2019 08:30 PM #5
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