During this time of year, it’s customary for borrowers to feel the need to apply for a mortgage after they file their tax returns. Unfortunately, this is more of an emotional desire than a practical one for most would be mortgage borrowers.
Lenders do not need your tax returns necessarily for a loan application unless required. You are legally required to file tax returns based on the amount of income that you earn per year. If you earn less than the amount per year, you need not provide tax returns for getting a mortgage. The following is a good rule of thumb when it comes to applying for a mortgage before or after tax time…
If you are self-employed i.e. sole proprietor business or have income from a corporation income it may make sense to file your 2017 income tax returns first, then apply for a mortgage especially if you need the most recent income year for your desired loan amount. If your self-employed income is the same in 2017 and 2016 it would not make any difference applying for a mortgage prior to April. If you are self-employed and your income is going to be less than in 2016 it might behoove you to apply for a mortgage and close on something before October 2017 (tax extension deadline) as most lenders need two years of income tax returns.
If you are W 2 wage earner whether your current income is the same. If it is lower, it does not have any bearing on whether or not you file your tax returns because lenders will likely use your current income. If are you a W 2 employee and only receive W 2 wages you need not provide tax returns for getting a mortgage anyway. If you are a W 2 employee, but you also receive other forms of income such as rental income for example or other forms of self-employed income or rental income then it may make sense based on what the other forms of income reveal.
Most of the time when people are thinking about securing a refinance or buying a home, for example, they just automatically assume because they haven’t filed taxes yet, they need to wait which is completely inaccurate. The majority of people would stand to benefit by applying for a mortgage before doing their tax return to see if they can qualify. The benefit of applying for a mortgage before tax season is that a good lender can show you the income you may need to apply for the mortgage amount you may need. By doing so a smart borrower can position themselves to purchase a house or get qualified to refinance the mortgage based on pragmatic plan vs. emotion.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.