Do Lenders Need Tax Returns If You’re Not Self-Employed?


Lenders are required to make sure you can afford your monthly mortgage payment. They do this by comparing your monthly credit obligations along with your gross monthly income. Credit account payments are verified by reviewing your credit report and your income by looking at copies of most recent pay check stubs covering a 30 day period. Upon review of both, your lender will arrive at your debt-to-income ratio. If you’re self-employed, you may not have pay check stubs and even if you do issue pay checks the lender will also ask for copies of your two most recent federal income tax returns, both personal and business.

For the self-employed borrower, the lender will average net business income over the previous two years while also needing to verify income from one year to the next is relatively consistent. They can only do this reviewing income tax returns because there are neither pay stubs nor W2 forms. But lenders can also ask for tax returns even if the borrowers are employees and not self-employed.

On a typical home loan application there is a space dedicated to income. There are sections for Base Employment Income along with areas for overtime, bonuses, commissions, dividends and interest, rental income and “other.” If a borrower has income from any source other than base employment income, the lender will need to review the income in the same manner as if the borrower were self-employed. This means you will need to provide copies of your two most recent federal returns. If any of the income outside of base employment income has a two year history, is consistent and the lender determines the income will likely continue, the income can be used to help qualify if needed.

Additionally you can also expect to sign a form lenders refer to as the 4506-T which allows the lender to request copies of your recent income tax transcripts directly from the IRS. Even if you’re not self-employed, the lender orders these forms and compares them independently with the information that appears on your loan application.
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