With tax season in full swing you may be preparing to file your 2016 taxes. If you're goal is to purchase a home in the next 1-3 years you may be wondering about your tax refund and how your tax filings could affect your ability to qualify for mortgage financing.
Lenders rely heavily on tax returns to support the income and asset assertions made by the borrower. In most cases, two years of tax returns and W-2s are required in order to show work history for at least two years, but tax returns also provide information about income deductions, business ownership, rental income, and self - employment, dependents, and more.
It's important to keep in mind that a loan officer can only qualify you for a loan based on income that has been claimed on your tax returns and on which taxes have been paid. It is also a good idea to speak with your tax preparer or accountant about your plans to purchase, so that they can advise you on how best to file your taxes in anticipation of a future home purchase.
Here are some things you may want to avoid or at least speak to a tax professional about when filing:
Unreimbursed Business Expenses
Expenses that are filed on taxes that reduce your income and ultimately your buying power. They are considered a liability and are deducted from your monthly income. For example, if you calim $7200 in business expenses annually, there would be a $600 monthly liability that would be deducted from your monthly income.
Rental income needs to be claimed as income on your taxes in order to be used as income when qualifying for a mortgage. In many cases the amount of rental income can be boosted when deductions are less than profit, and interest, depreciation, and taxes, may be used to offset a loss.
Self - Employed
For self - employed borrowers who plan to deduct expenses, the adjusted gross income ins the amount lenders use for qualification, and it is averaged over 2 years. For example, if your adjusted gross income was $20,000 in 2015 and $75,000 in 2016 the income used to qualify would be $47,500.
If you have additional questions about tax filing implications on qualifying, or mortgage guidelines and qualifications speak with a mortgage banker who will review your specific situation and work with your tax professional.
Please Note: This article is provided for illustrative purposes only. It is not an offer or commitment to lend money, and it is not an advertisement for a specific mortgage or a specific interest rate. Contact me to run the numbers for your situation.