It is now becoming a requirement of more lenders to confirm that a new client is up to date on their personal taxes.  If you have a high credit score above 680 and have regular employment income, most A-Lenders will want only a current paystub and your prior year’s W-2 or T-4 slip.

Only if your credit scores are low will banks dig a little deeper to ensure you are a sutiable risk.  Remember the government “trumps” the banks – meaning if you owe income taxes this will have to be paid either before the loan is advanced or from the proceeds of the proposed loan.

If you have been in arrears on your property taxes for a long time and it is reported to your credit bureau, this is a huge red flag for the banks.  Most A-Lenders will issue an automatic decline.  The banks will assume that you probably will be delinquent on your new loan/mortgage as well and are not in the business to have bad debts on their books that they have to take legal action on.  They would prefer to avoid the situation from the beginning, rather than entering into what could be a potential future problem.  To ensure this does not happen, most lenders will add the property tax portion to your monthly mortgage payment and pay the county on your behalf.

Christine’s Tip:

If you are self-employed and write off all your income with expenses to avoid paying income tax, good luck getting a loan from a bank.  You can’t have it both ways.

By showing a very low income on your tax return, you are completely eliminating your ability to borrow.  The banks will use only your net income when qualifying you for a loan.

I once had a client who made over $200,000 which he reported as business income on his tax return; however, he paid income tax on only $1,100 because he wrote off all his income with business expenses.  This was great for the client, who paid little to no personal income tax, but when it came to qualifying for a mortgage with a bank, he was declined.  Even when we tried a special stated-income program with an alternative B-Lender, the client was still declined.