Tax Return Timing & Mortgage Approval

File Taxes On Time for Approval

Filing your tax returns early can help with your Arizona mortgage approval.

Have you filed your 2012 taxes yet?  If not, what are you waiting for!  One of the most important pieces to the Arizona mortgage approval is a a loan applicants tax returns.  This time of year (tax season) can get a little tricky with regard to timing up mortgage approval relative to filing your taxes with the IRS.   The date an Arizona mortgage applicant files their taxes can be the difference between loan approval and loan denial!  

If a borrower is self-employed or commissioned and their income increased compared to prior years they maybe thinking that home loan approval will be easier because they made more money.  Logical thought right?  Not so fast.  While this may be true, the ability for that borrower’s Arizona mortgage lender to use the new – higher income depends upon when the self-employed or commissioned borrower filed their tax returns to the IRS.

Using Your Higher Tax Return Income

The key to using increased income on a Federal tax return on a new home loan application is the processing of that return by the IRS.  The IRS processing a return and a borrower submitting a return to the IRS are two completely different things.   More specifically, they are different by about 2 to 6 weeks.  You see, the IRS receives a return (which means they have it in their possession) and they then verify that the return has been received.  Once they have the return it the goes in line for processing.  Processing equates to an IRS agent reviewing the return for accuracy and the ultimate goal is for the IRS to confirm that they agree with the data the borrower has submitted relative to their income and their Federal tax liability. As you guessed – processing a return takes some time.

With a potential 6 week delay between the time a return is received by the IRS and the time it is processed you can see why timing is crucial.   Mortgage lenders are not the most trusting bunch these days and they will not allow a self-employed or commissioned borrower to use new income until the IRS has given that borrower’s return/income a stamp of approval.  Once the IRS approves, the lender can then use the income on the now 2102 validated tax return into the borrower’s mortgage application.

How to Avoid Surprises at Closing

Each Arizona loan officer and their team should request tax transcripts during the pre-approval stage to confirm the borrower’s taxes have been validated by the IRS.  Tax transcripts are basically a report that proves that tax returns have been reviewed / approved by Uncle Sam.  Tax filing dates should also be addressed in the up front application/interview process with a loan officer.  An Arizona mortgage applicant should be asked when they filed they taxes when the application takes place at a time where the loan applicants closing will take place after the 15th of April (technically if the loan applicant’s application will be submitted after the 15th of April).

For help with your pre-approval call or email The HOUSE Team today!

By Jeremy House

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