Mortgage Delays Due to IRS - Who Will Suffer?
"I heard that mortgage underwriters are checking with the IRS to verify our income. Current year returns haven't been processed yet. This is delaying approval of mortgages. Right?" asked Nacine.
I had just received this call from Nacine and I had zero information about her situation. I told her that I would be more than happy to answer her question. And would she mind sharing with me what prompted the question.
She was in a hurry. Nacine was getting ready to place an offer on a house. The offer only allowed her so many days to get her financing. She didn't want to lose her deposit because of IRS delays.
OK, here's what I told Nacine:
• Regular W-2 Employees: Mortgage lenders want to see IRS transcripts for the two previous filing years. From January 1st to April 15th, IRS transcripts not required for last year. Mortgage underwriters accept pay stubs and employer verification as proof of current income.
• 1099 Employees: Mortgage lenders treat 1099 employees (independent contractors) like self-employed people.
• Self-Employed: No pay stubs and no employer available to prove current income. Yes, mortgage lenders want to see IRS transcripts for the previous two filing years. But concern that business income matches the previous two filing years led mortgage underwriters to demand Profit & Loss Statements for last year. Certification by your tax preparer required.
I asked Nacine in what category did she belong. "Self-employed" she said. Nacine summarized what I said as follows: "Mortgage lenders don't stop processing home loans during the period between January 1st and April 15th. My tax preparer needs to prepare my Profit & Loss Statement and certify it. I really need to do this before I make an offer on a house. That would be best."
