Making Sure Your Tax Return Leads to a Smooth Home Buying Process

The beginning of a New Year is quickly becoming a reality. Along with the fresh start of a new calendar year, also comes the time for your employer to send to you a W-2 or 1099, which gives the total of wages earned the previous year, as well as taxes you had withheld. By law, this must be sent to you by January 31. If you are self-employed, you will total your income yourself. Investments of a rental property also must be documented and figured by you.

What to Include in Your Return

Of course, we all know it is important to be accurate in filling out your yearly tax return. It may be checked for accuracy at the time of filing, or be the subject of a full audit several years “down the road”. Your tax return will be the main verification tool your mortgage lender will use to verify that you make enough to comfortably make the payments now and in the future.

All of Your Income

• If you are employed hourly or salaried and no other income, it is fairly straightforward what the amount of your yearly income that will be reported. You would use the amount on your W-2. An adjustment would be figured on whether you paid enough in withholding tax. If you did not pay enough, more taxes will need to be paid at the time of filing. If you paid more than your appropriate share, you will get a tax refund. Allowed deductions, such as charitable giving may lower the amount of your taxable income
• Include the amount of interest you earned on savings, certificates of deposit, or stock gains. This is part of your income
• You may earn income with shares of stocks as part of your salary by a plan with your company for sharing in the profits. Be sure to include this in your return. Many lenders are now counting this as part of your income
• When you are self-employed, your income may not be as apparent. There is a total number, but expenses, allowed deductions, appreciation, accounts payable and many other things may figure into what the final income figure is to be reported. If it is difficult for a lender to ascertain your income by your tax return, you may be asked for a profit and loss statement
• Sometimes someone may have a combination of income. Rental income could be one of the aspects on your tax return. You will need to fill out a Schedule E. The rental payment you receive is not all income. There may be a mortgage payment, taxes, insurance, and repair expenses to figure before you come to the income amount
• Although one would want to take all deductions owed you, if you are trying to prove sufficient income for the price home you want to purchase, it may not be the year to become super creative in claiming extra deductions

What Your Lender Needs to See

• 1-2 years of the most recent tax returns – If this tax filing year is one of the two years, file as early as you can, so your return is complete and does not affect the timetable of your loan
• 1-2 years of your most recent W-2’s, or 1099’s
• 1-2 years of your business tax returns if you own 25% or more of the business

In the event that you are not able to produce a tax return, an IRS detailed transcript of meeting your tax obligation is a suitable substitute.

When you report to your lender by means of paystubs or your verbal amount of income, it is just a starting point. Your tax return will document your stability and possibly your increase in income over the last two years. Buying a home in the New Year is exciting for you! A home of your own is a defining point in your life. Follow these guidelines to make sure your home buying process is a smooth process. First Savings Mortgage is committed to helping you with all aspects of your home mortgage process.