Mr. and Mrs. Smith made more money in 2009 than they did in 2008 and they could not use that income to qualify for a mortgage. The bank could not verify it with the IRS so they would not use it. The loan was reviewed based on 2008 income and they were rejected! Not fair?  Of course not- learn why this happened.

Verifying income for mortgage approvals has become much more exact these days. Most banks will require proof of the last two years income received. Salaried borrowers will have to produce paystubs, W-2’s and sometimes tax returns. Self-employed borrowers will have to provide their last two years personal tax returns and often the business returns as well. Often, a person who received commissions and bonuses as part of their salary will also have to provide personal tax returns. If you are you are going to be applying for a mortgage and think you need to produce your returns get them done now! But….

What if there is a big change in income? A salaried employee with a small increase in income can simply verify it with a letter from the employer, so that is easy. However, this poses a big problem for those few that have received an increase in self employed income, bonuses and commissions from last year. In addition to providing tax returns, the mortgage lender needs to validate the return by having the borrower sign a Form 4506T and send it to the IRS to make sure your reported income matches the submitted tax returns. The lender will send the 4506T down to the IRS and get a short form tax return (summary page) and validate the income. Now, without this validation, the lender cannot use this income from 2009 and must go off the 2008 tax returns. If you need to qualify based on 2009 income, or even average 2008-9, they will not do it. HERE IS THE clincher- the IRS will not validate any tax returns from 2009 until After April 15^th. So, anybody that needs to qualify with their 2009 income cannot use it!  

My client was able to lower their mortgage payment, pay off an unsecured loan and change a few other things to qualify, so he was approved. If you are close, you can probably work it out, but if you need the 2009 income, then you cannot close until after April 15^th.