Qualify for a Mortgage with 1 Year Tax Returns
Traditionally, mortgage lenders have required two years federal income tax returns in securing a mortgage for purchasing or refinancing real estate.
There's been changes to the way mortgage lenders underwrite mortgage loans. Borrower may now get a mortgage with just one year of federal tax returns subject to approval.
Benefits of the Home Loan with Only 1 Year Tax Returns
** Use the most recent Filed Tax Return to Qualify
If you are a self-employed borrower who earned much more in the recent year there is no need to average the previous year when you made less income.
2015 Income is $60,000
2016 income is $100,000
*** Use ONLY 2016's income to qualify
IMPORTANT : Scroll to bottom to see "Reasons Why You May Be Denied"
Freddie Mac and Fannie Mae are among the few lenders that may accept only one year of tax returns. The others being portfolio loan products through private client departments at asset management companies. Fannie and Freddie Mac's automated underwriting system will indicate to the mortgage company how many years of tax returns and the number of months of bank statements is needed.
If the results from automated underwriting just ask for one year of tax returns, which is your most recent, then you're all set to apply for today's attractive rates.
Here's a couple more situations where this loan helps self-employed borrowers:
- A business that was recently established two-years ago had high start-up expenses so the prior year's income was minimal or a complete wash, although the business was very profitable in the next year it filed tax returns.
- A salaried employee changes to self-employed 1099 but his/her duties are essentially the same.
Approval is dependent on findings from Freddie Mac's automated underwriting system which analyzes the loan amount, loan-to-value and debt to income ratios along with the borrower's FICO credit scores, liquid assets, and other associated criteria. If you are self-employed, and have been declined elsewhere, this may be a great option.
The loan product allows a middle credit score of 620 along with approval from Freddie Mac's automated underwriting. However a low score may call for two years of tax returns. It is worth noting that Fannie Mae recently changed its program to allow for just one year of tax returns.
PURCHASE & REFINANCE (no cash out):
Primary Residence - Just 5% down, or 95% financing up to $453,100 (as much as $679,650 in certain counties of California, Colorado, and Florida)
- 20% down on 2 - 4 units
NOTE: Some lenders have overlays and reduce the maximum to 90% financing
Second Home - 15% down, or 85% financing.
Investment Property - 15% down, or 85% financing
- 25% down on 2 - 4 units, 75% financing
REFINANCING with Cash Back:
For loan amounts $453,101 up to $679,650 in high cost counties, cash out is available on:
Primary Residence - Single Family home up to 75% LTV
primary residence - 2 - 4 unit up to 65%
If you need a loan amount above these limits ($453,101 or $679,650) with One-year of 1040 returns, then a jumbo portfolio loan is needed. 70% financing is usually the maximum.
Reasons You May NOT get Approved for 1 year of Federal Returns
Recent Foreclosure or Short sale
Low credit score
Low liquid reserves
Loan Amount is over Conforming Limit
*** If you have a low credit score and/or low reserves, and NO recent bankruptcy, foreclosure, or short sale, then FHA may be the best option.