Can A Mortgage Lender Request Prior Tax Returns?

Can A Mortgage Lender Request Prior Tax Returns?

One of the most time-consuming aspects of the mortgage application process is gathering together all of the paperwork your mortgage lender requires. Included in the many items that lenders commonly request are prior years’ tax returns. It is common for lenders to ask to see the last two or three years of personal tax returns as well as business or partnership tax returns if they are applicable to you. With a closer look at why lenders ask for these documents, you will see why they are important to your loan application process.

Your Sources of Income
One of the first things your lender will look for when reviewing previous years’ tax returns is your sources of income and what those income amounts are. They essentially are used to verify the information you provided on your loan application. Everything from your W-2 income to self-employed income, rental income and more may be reviewed.

Your Deductions
Many people claim numerous deductions on their personal tax returns, and some of these deductions can be eye-opening to a lender. For example, if you claimed a considerably high deduction for uniforms and other work-related expenses, the lender may require an explanation regarding this to determine if this is an on-going expense that needs to be included in your net income calculation.

Other Information
There are other details listed on a tax return that may be important as well. For example, the payment or receipt of alimony or child support are typically found on tax returns as are your number of dependents. This is information that may have also been included on your loan application and that can be verified through a tax return.

While it can be burdensome to provide a mortgage lender with so much information, you can see that there are legitimate reasons why the lender is asking for your tax returns. Providing all information as soon as possible can help to facilitate the loan process.