Fannie Mae Guidelines For When Tax Returns Are Required For A Mortgage

Fannie Mae Guidelines For When Tax Returns Are Required For A Mortgage.  One of the advantages to doing a Conventional Mortgage is Fannie Mae generally requires less paperwork and documents then most other loan program.  Generally a Borrower only needs to provide:

• 30 days of paystubs.
• 30 day bank statement (presently most investors are requiring 60 days ).
• W2s for two years. 

For most Fannie Mae Loans those are the only documentation required, and most Realtors/Agents are aware those documents will be required for every mortgage.  Most Realtor/Agents are also aware two years of Tax Returns are required under certain conditions for:

• Self Employed Borrowers.
• Commission Income Borrowers.
• Borrowers who receive a 1099, such as Sub-Contractors.
• Borrowers receiving Rental Income on Investment Properties.

While the five above situation generally cover most of the times Tax Returns will be required for a Fannie Mae Mortgage (as well as most other mortgage programs), there are several other situations most Realtors/Agents are not as familiar with, which a Borrower will also be required to provide two years of Tax Returns, such as:

• Borrowers who receives W2 income, but claims un-reimbursed employee expenses on their Tax Returns.
• Borrower has a 25% or more ownership interest in a business.
• Borrower is employed by a family member.
• Borrower is employed by an someone who has an interest in the sale or purchase of the property.
• Borrower receives temporary or periodic employment, such as a tradesman who is employed by a local union and is contracted out by the union to other employers.
• Borrower receives income which cannot be verified by an independent source.
• Borrower receives income from:
• Capital Gains
• Royalties
• Real Estate
• Dividends
• Interest

If a Borrower receives anyone or combination of any of the above sources of income, two years of Tax Returns will be required.

So why should this be important to Realtors/Agents?  It should be important because it could be the difference between a Borrower qualifying for a mortgage or not.  If a Borrower receives W2 income and does not claim un-reimbursed employee expenses on their Tax Returns, the full Gross Income can be used to qualify for a mortgage.  But if a Borrower falls into any of the above categories were two years of Tax Returns are required, only the Net Income (income after business deductions) can be used.  The difference between the two can be huge, and therefore, the difference between qualifying for a mortgage or not.

Realtors/Agents would be wise to become familiar with Fannie Mae Guidelines For When Tax Returns Are Required For A Mortgage, because more and more of the mortgages presently being underwritten are Fannie Mae Mortgages.   By being familiar with the Guidelines Realtors/Agents can quickly identify if there may be income issues with a Buyer they are working with, and begin preparing their Borrower for documentation they need to immediately start putting together in order to obtain a mortgage.  I am not suggesting in anyway Realtors/Agents should assume the roll of a Loan Originator, but being familiar with income guidelines could identify situations which they need to quickly have their Buyer talk to a Loan Originator in order to avoid delays later on.

 

******************************************************************************

 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam,# Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com