Skip to main content

Why are Federal Tax Returns Important to the Mortgage Process?

Why are Federal Tax Returns
Important to the Mortgage Process?

     A recently submitted file reminded me yet again, of the pressing need within Mortgage Processing for Income Verification to the "n'th degree" ...  
     The topic of Income Verification is sometimes a topic that mystifies my Mortgage applicants.  They question why they must produce so much paperwork and so many documents.  The requests seem "over the top".     
     A Mortgage Lender requires that Borrowers provide a Federal Tax Return, including all Schedules, W-2's, 1099's, and also that the IRS confirms those figures via tax transcripts.  

     Current lending requirements demand that most, if not all, loan files include a signed 4506-T (IRS Form #).  This form allows and authorizes the Internal Revenue Service (IRS) to confirm the filings of a Borrower (and Spouse/Co-Applicant, if applicable).  

     These transcripts validate the copies given to the Mortgage Lender by the Borrower(s).  Given the Mortgage Industry's recent issues, it's now mandatory and logical that Lenders request this information verifying Income.  

     When a Mortgage Lender obtains: 
  • Copies of paystubs  
  • Sends a VOE (Verification of Employment) to an Employer that also shows a client's earned income for the current year and two prior years ...
     Why are Federal Tax Returns also needed?  And what is an Underwriter looking for on the client's Tax Returns and Schedules?

     A Federal Tax Return (Form 1040, 1040A) speaks to the total income earned and filed with the IRS.  

     Because income can be generated in several ways and is supported by various documents, even an hourly-paid, W-2 employee can have a uniquely completed return, should they have any of the following:
  • Side business
  • Investment income (dividends and interest)
  • An additional pension from a prior occupation
  • Unemployment income
  • Social security benefits
  • Real Estate Holdings 
  • More ...

     But what if the "side business" is struggling and showing a loss ... and is running at a deficit?  And what if the employee showed "Unreimbursed Business Expenses" (Form 2106) that literally are deducted from the gross, reported, W-2 income? 

     These two scenarios are fairly common.  And if not addressed and accounted for, can take a loan file from Approval at 49% DTI (Debt-to-Income), to a Denial at 51% DTI after the negative adjustments to Income are made.

     Without a thorough and careful review of a Tax Return, and its supporting Schedules, a Loan Officer and their transaction are open to an Underwriter's Review.  That can absolutely change what appears to be an approved loan, into a denied loan if the Income Calculation is reduced.

     Other common errors made surround those of:
  • Self-Employed Borrowers
  • Borrowers that have Multiple Income Properties
  • Borrowers with a Commercial Property that have filed Tax Returns and Schedules that show the property is owned personally and has a "negative" cash flow.  
     The bottom line is that the act of providing Tax Returns is important to the Mortgage Process and Approval of a Mortgage.  Tax Returns do matter, as do all the factors that impact Income ... 

     *  Hoping to Buy or Refinance a Home in a Lincoln-Way Community, Will County, or elsewhere in Chicagoland.  Contact Me.  I'll put my 37 years of mortgage experience and expertise hard to work on your behalf.
     I can be easily found at:
Direct:  815.524.2280
Cell/Text:  708.921.6331
eFax:  815.524.2281


Twitter Account of Gene Mundt, Mortgage Lender LinkedIn Account of Gene Mundt, Mortgage Lender Facebook Acct. of Gene Mundt, Mortgage Lender Pinterest Acct. of Gene Mundt, Mortgage Lender 
Trulia Acct. of Gene Mundt, Mortgage Lender Zillow Acct. of Gene Mundt, Mortgage Lender  Gene's Chicagoland Blog/Gene Mundt, Mortgage Lender  

Gene Mundt, Mortgage Lender, a Lender with 37 years of mortgage experience, will offer you exemplary mortgage service and advice when seeking:  Conventional, FHA, VA, Jumbo, USDA, & Portfolio Loans in Chicago and the greater Chicagoland region, including:  
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL

Your Referrals are Greatly Appreciated!


Popular posts from this blog

Property Addresses: Gettin' Down to the Nitty Gritty

Property Addresses:   Gettin' Down to the Nitty Gritty

Take just a second and read through the following statements ...

“The devil is in the details” 
... "in life, it is often the tiny details that end up 
being the most important"

"Get Down To The Nitty Gritty"

“Little details have special talents in 
creating big problems!” 

“Sweat the details”

"Success is the sum of details"

Details ...Details ... it's all about the details ...
     And I'll admit it, I'm a bit of a nerd about them.  My whole family is.  Details, the intricacies, the little things ... they matter to us.
When I was growing up, a typical conversation (and argument) between my brothers and myself at the dinner table or in the backyard centered around "details".  It didn't matter what the topic was, it was the minor differences ... the details about the topic ... that we argued about.  I'm sure we drove our parents crazy.  
Sports statistics and games ... minutiae rega…

Ready for Fall? It's Arriving Soon

Ready for Fall?  It's Arriving Soon

Friend ...

Maybe it's because football season has started. Maybe it's the kids being back in school. Or because the night air is cooler. But a sense of Fall has arrived here in Chicagoland ...

The Fall Season brings changes with it. Changes in temperatures. Changes to the clothing we wear. Our focus seems to shift with the coming of shorter days, falling leaves, and crisp air.

Fall can be the perfect time to do a multitude of things. You can prep your home for the upcoming winter weather ... or for Fall listing and sale. 

But whether you're moving on or staying put, Fall is a great time to declutter and organize your home inside and out ... and your finances too.

I've googled like crazy to find interesting articles filled with Fall info, ideas, tips, and photos. Articles that will help you usher the Fall Season in at your house. I hope you enjoy reading the articles offered below and that they inspire you to make any needed changes.


Paper or Paperless billing? Which serves YOUR needs best?

Paper or Paperless billing?  Which serves YOUR needs best?

These days, companies are under pressure to go "green" and become more environmentally friendly.  As a result, an increasing number of businesses are offering their customers a paperless option with which to receive and pay their bills. 

There are obviously many positives to be found within these paperless services:

Trees are saved  Reduced postage costs  Less paper documentation to organize or save/storePossible rewards for switching to paperlessPayments can often be made/posted same-dayAutomated payments can be set-upMore
But I can tell you from my vantage point as a Chicagoland/IL/WI Mortgage Originator, there are also negatives to be found within paperless methods.  For some of my mortgage clients, the choice of going "paperless" just hasn't worked well.

 For some, an email or text reminder regarding payment of bills has not been enough. They NEED a paper billing to arrive in their mail. 

Their paper bil…