When you apply for a mortgage, your tax returns from the past two years will play a big role in determining your financial eligibility. In addition to providing the lender with past copies of your tax returns, which the lender will verify for accuracy with the U.S. Internal Revenue Service, you'll also be asked to sign documents giving the lender permission to verify your Social Security number and review your bank records for a pre-specified period of time. The mortgage lender wants to assess your financial stability as well as the probability that you will be able to make your mortgage payments if your loan is granted.
It is quite likely that your mortgage company will verify your tax return with the IRS during their evaluation of your loan application.
What the Mortgage Company Looks For
A mortgage company will request a good deal of information from you when you apply for a loan. This process of vetting your financials in known as underwriting. The process involves a lending expert looking at your entire financial picture, not only your current status, but your history as well. Be prepared to grant access to:
- Your tax returns from the past two years
- A minimum of six months' worth of bank statements
- Pay stubs for the previous 6-12 months (possibly longer)
- A copy of your driver's license
If you are applying for a loan with a co-signer or co-applicant, both of you will be expected to provide this information. A co-signer can help you qualify for a loan by guaranteeing to pay the debt if you cannot.
Disclosures and Permissions
As part of the loan application process, you'll sign paperwork indicating that all of the information you are providing is true and accurate to the best of your knowledge. You'll be asked to provide an overview of your current debt obligations, including the account numbers and balances for things including:
- Credit cards
- Personal and student loans
- Auto loans
- Child support
- Outstanding balances you may owe on your taxes
The paperwork you sign as part of the process gives the mortgage underwriter the authority to verify that all of the information you are providing is current and accurate.
Potential Red Flags
The mortgage company underwriter looks for a number of things when they're evaluating your suitability for a mortgage loan. The underwriter will assess your income-to-debt ratio in relationship to the amount of money you're borrowing. In short, the company wants to ensure you don't owe so much money to other creditors that you'll run the risk of being unable to pay your mortgage. They will also review your credit report to see if you're over-extended or have been in default of one or more financial obligations in the past. Keep in mind, reviewing and verifying your tax returns shows the underwriter what your earning history looks like – an important element of determining your future earning potential.