Episode 61, Segment 2: How Your Taxes Affect Your Mortgage Application
What happens if you haven't filed your taxes, or you've extended your tax deadline while you're trying to apply for a mortgage? John Schutze describes the different ways in which your tax situation may affect your mortgage application.
If you owe money to the IRS for your 2015 taxes:
If you extended your taxes this year, you have to let the IRS know what you project you may owe them.
"You're supposed to pay what you owe to avoid penalties. So whatever you owe them, we have to prove that you paid it," John says.
If you owe penalty fines but owe the IRS less than $10k, you can set up a payment plan with the IRS. If you have a payment plan approved, you can still apply for a mortgage. In most cases, whatever that monthly payment is, it must be counted as a debt and also be included in your debt ratio.
"Basically, you either have to have proof that you paid what you owe the IRS, or have a payment plan set up that we can verify," John says.
If you haven't filed your taxes at all or you're self-employed:
That becomes a problem. If you're self employed and your income has gone up instead of down, with some loan programs we average the last two years of income - so if you made more money in 2015 but you extended your tax files, we can't use that income if you haven't filed. So that's a reason you want to file as soon as you can so we can use them in your application.
"We can oftentimes qualify you in this case if you're self-employed and have only been in business for one year," John says. "It has to be a full calendar year, but that's great news for some folks because now you may not have to wait two years before you can apply.:
If you're concerned about how your tax filing may affect your mortgage application, it's extremely important that you use a local lender who is knowledgeable in this area versus an online lender, who oftentimes can mistakenly qualify you or even reject your application when other options may actually be available to you.