Why not paying your self employed tax debt may cost you a mortgage  

When you’re self-employed and you’re looking to get a mortgage it’s super important that not only you file the right amount of income, but you also pay whatever debt is associated with the income you report, that is if you want to get a mortgage loan…If you’re self-employed and looking to buy a house or refinance a house and you need your most recent income year’s tax returns to qualify then this article is for you…

It goes without saying when your self-employed you need to provide tax returns in order to qualify for the mortgage. You have to show income and income is derived from the income you report on your federal tax returns.

Let’s say you’re using your 2020 tax return in particular. Based on the income you reported for 2020, you specifically owe money, let’s say you owe $20k for 2020. This 20k is identified on your tax return that you’ve specifically filed with IRS.

Let’s say IRS is backed up which they presently are and as a result, you have not paid that debt. Well when it comes time to close on the mortgage, the IRS debt cannot just simply be ignored. It must be paid off in full or have 3 months of payments associated with it, on a payment plan IRS has specifically approved. It doesn’t matter what kind of loan you’re applying for, the lender cannot just arbitrarily choose to ignore a debt you owe is no matter how big or how small.

The following does not matter:

  • IRS not processed the return- doesn’t matter, they will still accept the payment for the debt you owe
  • IRS is backlogged and has not communicated with me- doesn’t matter, they will still accept the payment for the debt you owe.
  • IRS has not approved a payment plan-doesn’t matter, they will still accept the payment for the debt you owe- can be paid for with less down on the house or gift money for the down payment, and use the down payment funds to pay off the debt.
  • I cannot afford the tax or a payment plan- then cancel the mortgage loan or get a co-signor and or gift money

This being said, make sure you have the monies if needed in the bank to refinance or buy the home then file your return. A good lender who fully understands all the intricate complexities of showing more or less than income can work with you and your accountant to best position you and your family for mortgage financing success.

Looking to borrow money to finance a home purchase or pay off debt? Get a quick quote now!

 

 

 

RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

Why Refinancing Today Trumps Waiting for Lower Rates Tomorrow

Why Refinancing Today Trumps Waiting for Lower Rates Tomorrow

In the dynamic world of mortgage rates, the decision to refinance is often met with…

How to use your FHA mortgage to sell your home for more

How to use your FHA mortgage to sell your home for more

If you have an FHA mortgage on your home and are planning to sell, you…

How to determine which mortgage loan program is best based on your credit score

How to determine which mortgage loan program is best based on your credit score

Choosing the right mortgage is crucial when you’re looking to finance your dream home. Two…

Here is a quick formula for determining how much income you need to buy a home

Here is a quick formula for determining how much income you need to buy a home

Buying a home is a big financial decision, and affordability is the number one factor…

View More from The Mortgage Files:

begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!