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Can You Get A Mortgage Without Tax Returns?

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated March 25, 2024​

7 min. read​

mortgage without tax returns

You want to purchase a home but can’t get approved for a traditional mortgage due to issues with your tax returns. This isn’t uncommon for individuals with lower gross incomes due to tax write-offs. Unfortunately, many lenders use this income figure when deciding how much of a home loan you qualify for, if any, or if your gross income is too low. The good news is there are programs that exist through private money lenders to help those who can’t get a mortgage with traditional tax returns.

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Understanding Tax Returns

Whether you’re employed, self-employed, or a 1099 earner, you may need to provide copies of your tax returns.

Employees

If you’re an employee of a company that receives paystubs and W-2s from your employer, prepare at least two years’ tax returns since your mortgage lender will need recent copies. It’s also important to note that your underwriter may check your tax transcripts from the Internal Revenue Service (IRS) to ensure that the information matches your W-2s.

If you also have other sources of income, such as retirement or rental property income, examining your tax returns will also help verify this income. Underwriters will then use the income information in your tax returns to determine whether you qualify for a mortgage or not.

Self-Employed

Getting a mortgage as a self-employed borrower can be more challenging than if you were an employee of a company. This is because you don’t have pay stubs or W-2s that mortgage underwriters use to verify income. Plus, tax write-offs reduce the amount of income that the mortgage underwriter could consider as income.

Self-employment income tends to fluctuate from time to time, and lenders typically view self-employed individuals as “high-risk borrowers.” As a result, lenders may request alternative documentation, such as your bank statements and liquid assets, as proof of income.

1099 Earners

1099 earners are also considered “self-employed.” These workers can be freelancers, independent contractors, or other self-employed individuals completing particular assignments. 1099 earners don’t have tax returns, so it may be harder to qualify for a mortgage loan.

Why Mortgage Lenders Ask for Your Tax Returns

A new home is often the largest purchase most consumers make in their lifetime. If you cannot pay cash and take out a mortgage instead, it’s also likely to be for a significant amount.

The lender wants reassurance that you can afford to pay back the funds you borrow, hence the request for your tax returns. Most traditional lenders will also request other documents to verify your income, like pay stubs or bank statements.

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What Do Mortgage Lenders Look for on Tax Returns?

Here are the things most mortgage lenders look for on your tax returns.

Your Income and Assets

The most obvious aspect lenders look at when reviewing tax returns is verifying income. This is arguably the most critical step in the underwriting process. Your tax documentation will give lenders an overview of your monthly gross income over a given period of time.

Tax returns will also show the number of assets you own. Lenders will need to see your business tax returns if you’re a small business owner.

Income Stability

When you apply for a mortgage loan, the lender will assess your income stability over a certain period, usually two years. They’re looking for a consistent gross monthly income during this period to ensure that your ability to pay back the loan remains the same throughout the loan term. This way, mortgage loan lenders can be confident that you’ll be able to repay the loan in the future.

If lenders see a change in trend to the downside or other fluctuations in your income, they might request additional information.

Your Level of Risk as a Borrower

Another thing that lenders look at is your level of risk as a borrower. You can appear a high-risk borrower if your credit scores are too low and your debt-to-income ratio is too high. Therefore, you may want to work on improving your credit score and lowering your DTI ratio before submitting your loan application.

Your Ability to Repay

Lenders are more reluctant to loan to mortgage borrowers who don’t have the ability to pay back the borrowed amount. Your income shows whether you can manage your monthly payments without defaulting, so make sure you have your income documentation.

Debt-to-income Ratio

Lenders use our debt-to-income (DTI) to evaluate your ability to manage your monthly mortgage payments in addition to your other debt responsibilities without difficulty. It’s often expressed as a percentage. The higher your DTI ratio, the riskier you appear to lenders.

As a general rule of thumb, your DTI ratio should be lower than 43%. However, lenders prefer DTI ratios lower than 36% because it shows you’re unlikely to default on your loan.

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Your Character

Tax returns may also reveal your character and your mental and moral traits. Mortgage lenders want to loan money to responsible borrowers with good character. This can be displayed in various ways. For one, lenders will review if you’ve ever missed filing your federal tax returns. If so, this may negatively impact your character with that of the SBA.

Any Red Flags

Apart from the abovementioned things, lenders will also look for any red flags. Potential red flags can include incomplete income documentation, no license to prove business ownership, and more.

Do All Lenders Require 2 Years of Tax Returns

It’s possible to get approved for a mortgage without providing tax returns as long as you don’t limit your search to Fannie Mae and Freddie Mac loans. You will most likely find these innovative home loan options from reputable private lenders like Angel Oak Mortgage Solutions. Some lenders offer bank statement loans that use your bank account statements instead of your tax returns to assess if you can buy a home.

Real estate investors have more flexibility with the types of loans they can receive. Asset-based loans focus on an investor’s assets, while DSCR loans consider a property’s ability to generate enough cash flow to cover mortgage payments. No income verification mortgages are also an option for people who have good credit scores but don’t want to provide tax returns. You may end up with a higher rate if you go an alternative route from conforming loans.

Can You Get a Mortgage Loan Using Just Your Tax Returns?

Probably not. Most mortgage lenders look at your credit score and debt-to-income ratio, among other factors. Some lenders do not look at your credit score and will use other information like your tax returns instead. You can even consider a no-ratio mortgage so the DTI ratio does not impact the application process. However, these types of mortgages look at your credit score.

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How Do You Qualify for a No Tax Return Mortgage?

Not all mortgages that don’t require tax returns for approval are the same. So, it’s best to confirm the eligibility criteria with the lender before applying to determine if you could possibly qualify for funding.

Keep in mind, though, that most lenders require a loan-to-value of 80 to 90 percent, a minimum credit score of 640 (or 620 for properties with an LTV that will be owner-occupied) and three to six months of reserves. Your debt-to-income (DTI) should also be no more than 45 percent, although some lenders permit a slightly higher percentage if your credit score is higher.

Alternative Requirements If You Don’t Have Tax Returns

If you’re applying for a mortgage without supplying the lender with tax returns, you may be required to adhere to the following guidelines:

Self-employed Borrowers

The lender will typically confirm that you’re a self-employed individual by requesting a copy of your business license from your respective state or looking up your company on the state’s website. You could also be required to submit 1099s from the most recent tax year to prove your status as a self-employed applicant.

Down Payment

To secure a home loan without a tax return, you’ll also need to make a down payment, usually between 10 and 20 percent. The exact amount will depend on the lender, loan type, loan amount, your credit, and overall financial profile.

Credit Score

Each lender sets its own credit score thresholds. Keep in mind that you could get approved with a lower credit score, but the down payment requirement could be higher, or the DTI ceiling may be more stringent.

Bank Statements

Be prepared to provide personal and business bank statements for the last 12 to 24 months. Most lenders will divide the total yearly deposits by 12 or 24 to determine your average monthly income and use it to calculate how big of a loan you’re eligible for. If you’re also using business statements to qualify for a loan, the lender may opt not to factor in the total deposits received in your company account.

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Other Assets You May Own

Some lenders also consider the assets you have at your disposal when reviewing your home loan application.

Property Types

In most instances, these home loan products will only be available to borrowers looking to purchase properties that don’t exceed four units. So, single-family homes, vacation homes and investment properties may be allowed.

What is the Typical Rate for No Tax Return Mortgages?

You’ll typically get a higher interest rate for a no-tax return mortgage than you’d get with a traditional mortgage product. This is due to the level of risk these home loans pose to the lender.

The exact rate you’ll receive usually depends on the loan type, down payment and credit rating.

Are There Risks Associated with Getting Mortgages Without Tax Returns

A mortgage without tax returns isn’t right for everyone, depending on your financial situation. You may end up with a higher interest rate, which will increase your monthly payments. Some non-QM loans start with interest-only payments. This model is good for real estate investors who want to flip properties or realize exceptional cash flow in the beginning. However, some individuals can get caught by surprise when the principal mortgage payments begin.

The type of mortgage also plays a factor, as some of them are riskier than others. However, these mortgages can help some first-time home buyers access financing, especially self-employed workers who have more write-offs. A bank statement mortgage or a similar financial product can demonstrate the person is able to pay off the loan. Wage earners end up with higher taxable income, so they may want to submit a mortgage application for financial products that require tax returns.

Conclusion: Is It Possible to Get a Mortgage Without 2 Years of Tax Returns?

You can get financing for your property even if you do not provide tax returns. Lenders consider various factors like your employment history, credit, and debt-to-income ratio before giving out loans. They post credit score requirements, and in some cases, you don’t even need good credit to get the mortgage amount that you need. Exploring non-qm mortgage loans can speed up your path to financing.

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Where Can You Get a Mortgage Without Tax Returns?

When you’re ready to apply for a mortgage, consider Angel Oak Mortgage Solutions. It’s a full-service mortgage lender offering the following home loan solutions for prospective buyers who don’t want to use tax returns:

  • 1099 Income Loan: If you are a gig worker or business owner, you can use 1099 earnings in lieu of tax returns to qualify for a mortgage loan. This loan lets borrowers receive loans by showing one or two years of 1099 forms plus a year-to-date earnings statement.
  • Bank Statement Home Loan: This home loan product is designed for self-employed individuals who want to use their personal or business bank statements to qualify for a mortgage. If you have at least two years of self-employment experience, you could qualify for a loan between $150,000 and $3 million.
  • Asset Qualifier Home Loan: With Angel Oak’s Asset Qualifier Home Loan, you can use your liquid assets to qualify for a mortgage. This type of loan makes you eligible for a mortgage without any employment, income, DTI, or tax return requirements.

If you want to explore this or any other mortgage products, Angel Oak Mortgage Solutions is a lender specializing in non-qm home loans. Submit an online inquiry today, and an Angel Oak team member will reach out to discuss your unique mortgage needs.

FAQs About Getting a Mortgage Without Tax Returns

Can you get a mortgage if you have not filed taxes?

Most mortgage lenders will not work with you if you have not filed your taxes. However, you may find a few exceptions in the non-QM industry.

Do you need tax returns to buy a house?

Not all lenders require tax returns to buy a house. You should filter your search to non-conforming mortgage lenders.

What do mortgage lenders look for on tax returns?

Mortgage lenders will look at your income, employment history, and the consistency of your earnings, among other factors.

How many years of tax returns for a mortgage?

You typically need two years of tax returns for the mortgage application process.

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