Why do lenders require two years of tax returns?
Lenders require two years of tax returns to verify a borrower’s income and assess their ability to repay the mortgage. This requirement applies to all borrowers, not just self-employed individuals. The tax returns provide lenders with a more accurate picture of a borrower’s income than pay stubs or bank statements.
If you’re self-employed, your tax returns will show your net income, which is the amount you earn after deducting business expenses. Lenders will use this figure to determine your debt-to-income ratio (DTI), which is the percentage of your income that goes toward debt payments. Lenders typically prefer a DTI of 43% or lower, although some may be willing to consider higher ratios.
Can self-employed individuals get a mortgage without two years of tax returns?
It is possible for self-employed individuals to get a mortgage without two years of tax returns, but it may be more challenging. Some lenders may accept alternative forms of income verification, such as bank statements, profit and loss statements, or letters from clients or customers. However, these alternatives may not be as reliable as tax returns, and they may not be accepted by all lenders.
If you’re a self-employed individual looking to get a mortgage without two years of tax returns, you may want to consider working with a lender who specializes in self-employed home loans. These lenders understand the unique financial situation of self-employed individuals and may be more willing to work with you to find alternative forms of income verification.
Keep in mind that even if you’re able to get a mortgage without two years of tax returns, you may still need to provide additional documentation to prove your income and financial stability. This could include bank statements, client contracts, and other business documents.