When you are buying a home and taking out a mortgage, your lender will need to see your most recent tax returns and in some cases, the prior year’s return too. After your loan has begun being processed the lender will request your tax transcripts straight from the IRS. This eliminates any risk of fraud that any borrower could commit in an effort to obtain a higher loan amount or to make themselves look better on paper. This was a real problem back during the time that stated loans were available, but those have been removed from the market since the housing crisis occurred. The tax transcripts that are required by a lender can take up to 12 weeks to receive, which can add a lengthy delay to the loan process. If you were to amend your tax returns during this time, you could put an even longer delay on your loan.
How an Amended Return Hurts your Mortgage
Your lender provides you with a mortgage qualification based on the information that you provided on your application as well as on the paperwork that you provide. If you provide tax returns with a certain amount of income on them and then amend it for one reason or another, you are essentially changing the amount of your income. If the amended return reduces your income, then it affects your entire loan because your debt-to-income ratio will now be higher, which could make your loan approval null and void.
What to do if you Amend your Returns
It is important to be up front with your loan officer. If you are going to amend your returns, you need to let him know that you are doing it as well as the reason that you are doing it. Once you amend your taxes, you will need to provide a written explanation for the change as well as explain how the change affects your income. If you owe money to the IRS as a result of the amendment, you will need to show proof that the payment was made. After all of this is complete, the bank will have to verify everything that you used to qualify for the loan again, including your assets if you had to pay the IRS a sizeable amount of money.
Waiting for your Approval
Once your amended returns are filed, you might have to wait for a new approval. Some lenders will take your newly filed return and process your loan. Other lenders will want you to wait the length of time that is necessary for them to obtain official transcripts from the IRS showing your amended returns. They will also need to see cancelled checks and/or any payment plan paperwork that you have received from the IRS if you had to create a payment plan.
The best way to be sure of your application status is to make sure that your taxes are properly filed before applying for a mortgage. Making a change to your taxes right before or during the mortgage process can be very harmful to your mortgage approval. Of course, if your taxes were incorrectly filed, they need to be corrected, but you should do this before the mortgage process is started. A change in your income could have a serious effect on your ability to obtain a mortgage, or at least one the size that you were already approved for. If you are denied the loan that you currently applied for, you still might be eligible for a mortgage with a lower loan amount, but it could mean that you will have to search for a lower priced house or put a larger down payment down in order to get your mortgage amount to a level that you are approved for given your new income.Click to See the Latest Mortgage Rates»