Are Tax Returns Needed in a Mortgage Application

Are Tax Returns Needed in a Mortgage Application


An age all question when buying a home and applying for a mortgage:  Are tax returns needed in a mortgage application from the buyers?  My guest mortgage lender, George Soutu, will provide the true skinny of information Are Tax Returns Needed in a Mortgage Applicationon that question in this post.   Even though Lending Guidelines have tightened up in recent years in documenting income and assets, the documents required for Borrowers for most loans programs remain the same.  Most Borrowers generally only need to provide a few basic documents such as:

  • 30 days of paystubs.
  • Two Months of bank statement.
  • Explanation & documentation of large deposits
  • W2s for two years.
  • Copy of Borrower(s) driver’s license

However, there are Borrowers, mainly those who do not receive a W2 at the end of the year, who also require Tax Returns (two years of the most recent federal tax returns) when they apply for a mortgage.

So When Are Tax Returns Required For A Mortgage from Home Buyers, and who are these Borrowers?   They are as follows:


  • Self Employed Borrowers.
  • Commission Income Borrowers.
  • Borrowers who receive a 1099, such as Sub-Contractors.
  • Borrowers receiving Rental Income on Investment Properties.

While the 4 situations above generally cover most of the times Tax Returns will be required when applying for a mortgage, there are several other situations most buyers are not as familiar with, which a Borrower will also be required to provide two (2) years of Tax Returns, such as:

  • Borrowers who receives W2 income, but claims un-reimbursed employee expenses on their Tax Returns.  (as of this year Fannie Mae no longer requires this)
  • Borrowers who have a 25% or more ownership interest in a business.
  • Borrowers who are employed by a family member.
  • Borrowers who are employed by someone who has an interest in the sale or purchase of the property.
  • Borrowers who receive temporary or periodic employment, such as a tradesman who is employed by a local union and is contracted out by the union to other employers.
  • Borrowers who receive income which cannot be verified by an independent source.
  • Borrowers who receive income from:
    • Capital Gains
    • Royalties
    • Real Estate
    • Dividends
    • Interest

If a Borrower receives anyone or combination of any of the above sources of income, two (2) years of  Federal Tax Returns filed will be required.

So why should this be important to Realtors/Agents?  It should be important because it could be the difference between a Borrower qualifying for a mortgage or not.  For example Borrowers who receive W2 income can use their full Gross Income to qualify for a mortgage.  W2 income Borrowers who claim un-reimbursed employee expense will be required to produce two (2) years of Tax Returns for all loan programs other than Fannie Mae, and they will only be able to use the Net Income (income after business deductions) to qualify.  The difference between the two can be huge, and therefore, and the difference between qualifying for a mortgage or not.  Every buyer needs to know this information especially if self-employed.

Realtors and buyers would be wise to become familiar of When Are Tax Returns Required For A Mortgage.  By being familiar with these Guidelines Realtors/Agents can quickly identify if there may be income issues with a Buyer they are working with, and begin preparing their Borrower for documentation they may need.  I am not suggesting in anyway Realtors/Agents should assume the roll of a Loan Originator, but being familiar with income guidelines, Agents can quickly identify situations were they need to quickly have their Buyer talk to a Loan Originator in order to avoid delays later on.

Are Tax Returns Needed in a Mortgage Application



Info about the post author and guest blogger, George Soutu:

Is a mortgage Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or

I appreciate George’s shares on mortgage information in the current real estate times with my web site readers at

Rhode Island real estate agent and licensed RI real estate agent, Ginny Lacey Gorman, helps list, markets and sells homes and waterfront property in Rhode Island at 401-529-7849 or email me at