As it comes time to file your 2015 federal income tax return, there are a few important items to keep in mind; specifically when it comes to obtaining a home loan.
Until April 15th, the tax filing deadline, lenders will use the proceeding 2 years filed tax returns to calculate income for a home loan. Below are a few items that can affect your home loan pre-qualification*:
- Declining Income from year-to-year – if your income has declined from the previous year to the current tax filing period, this may be a problem. Be sure to discuss this with your lender.
- Un-reimbursed Business Expenses (Form 2106) – such as uniforms, union dues, licenses or exams, travel expenses, car mileage, meals and entertainment. These will be subtracted out of your qualifying income.
- Schedule C Filing (for those self-employed or who have a side business) – Income/Loss – this can affect you even if it’s not your primary form of income.
- Schedule E Real Estate – the purchase of additional properties or the conversion of a primary/secondary residence to an investment property will affect the income/loss numbers from the previous year.
Keep in mind, timing is important! Once you file the current year’s tax return, it can take the IRS 4-8 weeks to process the filing. If your home loan pre-qualification depends on the income reported for the current year, lenders will require the return to be processed and verified by the IRS before the income can be used for qualifying. This is most important for self-employed borrowers or those filing a Schedule C or Schedule E. Also, if you file an extension, lenders will require a copy of the extension along with proof of any payment required at the time of the extension. If you are self-employed, lenders generally require a P&L (Profit & Loss) for the previous year and a year-to-date P&L.
The Bottom Line:
A good lender will be helpful to you by looking at past years’ returns and giving you their opinion as to the way your income would be calculated if you filed the same way for the current year as you did in past years.
Understand this, a Lender is not a CPA and cannot and should not give you advice on how to file your taxes.
Cherry Creek is not authorized to give tax advice. Please consult your tax adviser for tax advice for your specific situation.
*A prequalification is not an approval of credit, and does not signify that underwriting requirements have been met