How to Use Income Tax Records to Get a Home Loan

Buying a new home is stressful, but even more stressful for the self-employed.

Buying a new home is stressful, but even more stressful for the self-employed.

Lenders not only look at your credit score when deciding whether you qualify for a home loan -- they also look at your income. Lenders typically request copies of your paystubs or W-2s to prove your income, but the self-employed have a difficult time proving they're income-worthy. Self-employed borrowers don't get a paycheck, so providing lenders with a copy of your income tax records is the only way to get a loan. Your tax forms include your adjusted gross income, which your lender uses to figure whether you can afford a home loan.

Grab copies of your last two years income tax returns. If you don't have the returns and self-prepared your taxes, you can print a copy of each using the program you used to file your return. If you paid someone else to prepare your taxes, ask for a copy of each return from the tax preparation business. If you've exhausted both avenues and still can't find your tax return, order a tax transcript from the Internal Revenue Service website.

Fill out the mortgage loan application with the lender. Use your adjusted gross income listed on Form 1040 to report your income.

Provide both copies of your tax returns to the lender. Some lenders will also ask that you sign a form that gives the lender permission to order a tax transcript from the IRS. This is just their way of insuring the information on your return is accurate.

Calculate your debt-to-income ratio with the lender. Your debt-to-income ratio is your monthly debt, including credit card minimum payments, car loans, student loans and mortgage payments, divided by your average monthly income. According to LendingTree.com, your debt-to-income ratio shouldn’t be higher than 36 percent, but some federal lenders accept a ratio of as high as 41 percent.

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About the Author

Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.

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