Are you wondering if you need to have tax returns in order to buy a house? You’re not alone. Many home buyers have the same question. While the answer may vary depending on your individual situation, we’ll try to give you some general guidance on this topic. Keep reading to learn more about whether you need tax returns to buy a house.
You don’t need tax returns to buy a house – but they can help
Buying a house is a complex process and there’s a lot of paperwork that needs attention, so it makes sense to think you’d need tax returns to get approved. However, many lenders can find ways around needing these documents if your situation is complicated. That said, having recent tax returns on hand can be a great way to make the entire process easier and faster; this gives the banks a better understanding of your financial picture and could open up some loan products you wouldn’t have been able to access otherwise.
Most banks will ask for other documents in lieu of tax returns, such as:
- 12 months of bank statements
- W2’s and paystubs
- Profit and Loss Statement
- Proof of Cash Deposits
These are just a few examples. Whenever lenders take borrowers through the rollercoaster ride of obtaining a mortgage loan, they usually battle the underwriters and always have to make sure the borrower will be able to pay back the lender and will qualify for the debt being issued. Therefore, having the right documents upfront can be a great way to make sure that the process goes as smoothly as possible.
Tax returns can show how much money you make and whether or not you’re able to afford a house
When you’re buying a house, the tax returns you’ve filed over the years can be an essential document. They show how much money you make, giving potential lenders or real estate agents an idea of whether or not you’re able to afford the home you want. On top of that, it’s a great way to prove and verify your employment history and is often required to begin the paperwork process for purchasing a home. Remember, if buying a house is in your plans – take care of your tax statements!
Aside from using your tax returns to buy a house, they can also be used for other important things. For instance, you may need to provide some of the information found in your tax return when applying for student loans or certain types of grants. As an independent contractor or sole proprietor, tax returns may even be necessary for gaining access to business loans. In any case, it’s always a good idea to keep your tax returns up-to-date and organized so that you can easily access the documents you need when necessary.
Your tax returns will also be used to prepare your personal annual income statement. This document summarizes all of your income from various sources over the course of a year, which helps to give you an understanding of your overall financial health. With this information in hand, you can make more informed decisions about your investments and other financial matters.
There are other ways to prove your income
If you’re looking to buy a house but don’t have your tax returns readily available, don’t worry. There are certainly other effective ways to prove your income and get the ball rolling on your mortgage journey. Options can include providing bank statements or even showing paycheck stubs from the last 6-12 months that indicate consistent earnings. If you’ve been with the same employer for a long period of time, providing additional information about their hiring practices may also be an option. Working closely with a financial advisor or lender can help you understand which approach may be best for your specific circumstances. And remember – even if you don’t have traditional tax return documents, you can still make great strides towards homeownership.
When lenders look at bank statements, they just want to see consistency over the last 12-month span. If you are running a business, is your business seasonal? Do you have a strong summer and generate six figures in income but weak winter and cannot generate much? As a business how do you account for that? Be ready for questions like that from the underwriters.
Depending on the lender, other documents such as investment account statements and/or payroll check stubs may be required. Keep in mind that these documents will need to reflect your monthly income and can also be used to confirm your address and proof of employment.
Even though tax returns can be avoided, whether you run a business or work for an employer, underwriters always run their verification channels. They run something called verification of employment for employers for confirmation the employee works there and for businesses they check with the State Corporation Commission to make sure it’s a real business.
When you are getting ready for a mortgage, it pays to have your paperwork organized and ready to go. If you can provide your lender with comprehensive financial statements, tax returns, and other documents that prove your income and ability to pay back the loan, your application will be in a much better position for approval. No matter what type of documentation you have, it’s important to always stay honest when providing information to lenders and speak with a qualified professional who can help you understand what’s best for your situation.
Talk to a Lender
When you’re ready to buy a house, the most important thing is to make sure that you speak to a lender about what you will need to provide in order to get approved for a loan. Speaking with an experienced loan officer can help alleviate a lot of stress and anxiety as it may be difficult to navigate the requirements of buying a house on your own. At the very least, you may need recent tax returns, pay stubs, and proof of employment, which are all necessary documents that could sway your eligibility for a loan.
Once you have the right documents and financial information ready, you can start shopping for a mortgage. It is important to shop around to compare different lenders and find the best interest rate available. Many lenders will offer different types of loans depending on your income level and credit score, so it’s crucial to do your research thoroughly.
When you’re ready to start house-hunting, it’s important that you know your budget. Knowing what type of mortgage payment you can comfortably make will help narrow down the list of homes you should be looking at. Additionally, speaking with a real estate agent may also be beneficial in helping to navigate the home-buying process.
In conclusion, it’s not necessary to have tax returns to buy a house, but they can certainly help. Tax returns show lenders and potential buyers how much money you make and whether or not you’re able to afford a house. Plus, they provide evidence that you’re responsible in managing your taxes. If you don’t have tax returns, there are other ways to prove your income. Just be sure to talk to a lender about what exact documents you’ll need to present in order to qualify for a loan for your dream home.