Is It Possible To Purchase A Home Without Submitting Tax Returns?

Is It Possible To Purchase A Home Without Submitting Tax Returns?

The average mortgage applicant understands how the process works. When an application is submitted, lenders will verify information and consider the merits of the application. During this process, lenders perform background checks and analyze an applicant’s financial situation. Most lenders obtain tax transcripts from the IRS, but not everyone wants to, or can, submit tax returns in this situation.

A Different Situation For Each Applicant

Some applicants work for themselves and don’t receive a W-2. Others work with and get paid in cash rather than through checks or bank transfers. On top of that, some individuals simply don’t want to supply so much information to a lender. They might prefer to avoid disclosing their income and other financial information. These situations are somewhat rare. Still, solutions are available for individuals here.

No Doc and Low Doc Mortgage Loans

First and foremost, applicants should understand most major banks won’t accommodate these situations. Only smaller lenders or those that provide riskier loans will consider such an applicant. “No Doc” and “Low Doc” loans are sometimes available to prospective home buyers. With these loans, a given applicant can expect to receive a high-interest rate and a lower-than-normal maximum loan amount, among other downsides.

Excellent, and we mean excellent, credit is required to apply for these loans. A No Doc loan allows someone to avoid submitting tax returns or transcripts. However, they’ll still need to submit to a credit check and prove a source of income. Such loans don’t act as shortcuts for obtaining a mortgage loan. Many applicants might even find this option more difficult to receive approval for compared to traditional mortgage loans.

In the end, No Doc and Low Doc mortgage loans are excellent options for certain borrowers. Individuals in the right situation can receive loan approval when they otherwise wouldn’t through a traditional bank or financial institution. Someone that has an impeccable credit history and a high level of income should consider this solution for buying a home.

 

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Do Mortgage Lenders Verify an Applicants’ Tax Returns with the IRS?

Do Mortgage Lenders Verify an Applicants' Tax Returns with the IRS?

Mortgage lenders mandate that borrowers meet strict income requirements for a given loan. Countless loan applications are denied because applicants cannot meet these requirements. Similarly, lenders deny mortgage applications when they cannot verify income information. Prospective home buyers often wonder whether lenders verify income figures and sources. Every mortgage lender verifies this information with various sources, including the IRS.

How Mortgage Lenders Obtain Tax Transcripts For An Applicant

A given lender cannot afford to be lax during the verification process. In fact, mortgage lenders often request tax transcripts from the applicant. The applicant doesn’t send these transcripts directly to the lender, though. Instead, he or she agrees to authorize the Internal Revenue Service to send these transcripts over to the lender. From there, an applicant fills out Form 4506-T (Request For Transcript of Tax Return).

What is a Form 4506-T? 

Form 4506-T is required to let the IRS know an entity has permission to receive a taxpayer’s transcripts. Fortunately, the form is available both online and in mailable paper form. When the IRS receives this form, transcripts will be sent directly to a mortgage lender within 10 business days. Taxpayers pay nothing for this service, and the form itself takes minutes to fill out and submit to the agency.

No mortgage lender will consider an application without receiving tax transcripts. These transcripts must come from the Internal Revenue Service, and not the mortgage applicant. Plus, a lender will verify other income information submitted alongside the tax transcripts as well. Pay stubs and other sources will be verified against tax transcripts to ensure complete honesty and transparency in an application.

Lenders want to avoid approving mortgage loans that could cost them money later on. Therefore, each and every lender verifies an applicant’s income during a given period. A lender expects a mortgage applicant to have the means to pay the mortgage. No bank or financial institution wants to take the risk someone will default on their loan. This helps explain why transcripts must be sent from the IRS and verified right away.

 

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Can you purchase a house if you owe taxes?

Can you purchase a house if you owe taxes?

To a certain level, mortgage lenders do not view debt as a no-go on offering you a home loan. Collections and judgments from private entities hurt, but nothing hurts as bad as owing the government unpaid funds. Even if the debtor is the federal government, though, it doesn’t automatically disqualify you from seeking a mortgage. It just makes it more complicated and requires some extra financial diligence on your part.

How Complicated Is Obtaining A Mortgage If I Owe The IRS? 

The IRS has several options in their arsenal to collect unpaid taxes, including placing liens on real estate and bank accounts assets should you fail to respond to their official notice within 10 days. These show up in your credit report, often even after bankruptcy.

Federal debt is particularly problematic if you’re seeking a government-backed mortgage, such as a VA or FHA loan. While it also sets warning bells a ringing for private lenders, it doesn’t make it impossible to get a loan so long as your taking the appropriate steps to rid yourself of the lien.

The bottom line is that it’s complicated to obtain a loan with or after a federal lien, but not impossible.

Extra Hurdles Are Involved In Getting A Mortgage For Borrowers With A Federal Lien

Of course, it’s ideal to pay off the lien before applying for a mortgage. That’s not always possible, however. Now, the question for the lender becomes of effort. What are you, the borrower, doing to honor the debt? What level of effort is expected will depend on the type of loan being sought. Another big consideration is how that effort impacts your debt to income ratio.

Veterans or military personnel trying to get a VA mortgage approval, for example, would face proving they have an acceptable IRS repayment plan, have timely honored the repayment plan for at least a year, a satisfactory debt to income ratio, and honestly disclosed the existence of the lien on the loan application.

Automated underwriting can be problematic for any type of mortgage loan involving a borrower with a lien. Lenders, if they’re willing, can use manual underwriting to get around the issue. This involves a more in-depth assessment of your financials and more stringent requirements than traditional underwriting, including requiring a much lower debt to income ratio.

What Can I Do To Improve My Chances Of Getting A Mortgage As A Borrower With A Federal Lien? 

•Pay off the lien as soon as possible.
•Show good faith that you’re making consistent, timely, and full payments to rectify the federal IRS debt.
•Keep your debt to income ratio as low as possible, meaning avoid depleting your purchasing power by creating more debts and utilizing credit limits.
•Ensure that all other debts are paid timely and in full & routinely monitor your credit reports.

While not impossible, obtaining a mortgage as a borrower with a lien on their financial records means that you’ll have to take an active role in jumping across a significant amount of extra hurdles to satisfy a mortgage lender.

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How do you show proof of income for self-employment?

How do you show proof of income for self-employment?

It’s important for individuals with self-employment income to understand that, unlike with wage earnings issued by an employer, their income as an independent contractor, sole proprietor, part-time or full-time business owner, or small business owner doesn’t have automatic tax deductions taken from it.

First, you’ll need to know if you’re legally obligated to pay taxes on the income. Second, you’ll need to have a comprehensive way to accurately document income and expenses. Lastly, if applicable, you’ll need to know how you need to file your taxes.

Am I Subject to Self-Employment Tax and Income Tax?

Start by figuring your net profits and losses by subtracting business expenses from income. Any amount $400 or more in net earnings must be reported. The difference between expenses that do not surpass income is net profit, which is reported on Form 1040. Net loss occurs when your business’s expenses are greater than its income, and this loss can generally be deducted from gross income on Form 1040.

Also, keep in mind that self-employed individuals are likely required to file both annual returns and quarterly estimates on taxes. In most cases, self-employed individuals must pay both self-employment tax, which covers Medicare and Social Security taxes, as well as income tax, which covers earned income. Form 1040-ES, Estimated Taxes for Individuals is used to estimate Social Security and Medicare taxes.

Types of Self-Employment

There are various portals for self-employment, each operating a little differently when it comes to completing tax requirements for self-employment income. Let’s look:

1) Independent Contractor Self-Employment

The line between contractor and employee can often get blurry. The IRS has a criteria checklist to help you determine which category you fall under, such as by how much control you have over the performance of the work being completed. Furthermore, anyone performing over $600 of work for an entity as an independent contractor annually must be given a 1099-MISC form by the entity documenting that income. This serves as your proof of self-employment income and should be saved for tax preparation.

2) Small Business Self-Employment

Schedule C tax forms document your annual gross revenue in the monies you’ve received for products or services -and- your net profit after you’ve subtracted your expenses from your revenue. Keep in mind that you’ll need to prove income and expenses. You’ll find expense lines on the form to list items such as office supplies and materials, auto expenses, fixed-asset depreciation, payroll, and rent; this is partly proving, or rather justifying since you’re turning the form into the IRS. However, to verify the expenses, you’ll need to accurately keep documentation throughout the year, including balance sheets, receipts, and other accounting records.

3) Rent and Royalties Self-Employment

Royalties are sources of income for previous work completed but that still draw an income, such as income from a song or book you’ve written. Any entity that paid the royalties to you is required to send you the 1099-MISC form. Again, keep these forms for tax preparation. Rent is another form of income considered as self-employment. You’ll likely receive 1099 forms from commercial and residential tenants, but always keep your banking records as verification.

In closing, self-employment income can take many forms. It’s important to thoroughly document expenses and earnings throughout the year and know your employment classification and status. Documentation can be a DIY bookkeeping system of invoices, ledgers, and bank records, or it can be through an in-house or contracted professional accountant. Either way, an accurate system will be needed to properly file self-employment taxes and avoid devastating tax penalties for filing mishaps and inaccuracies.

 

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Where does all the Social Security money go?

Where does all the Social Security money go?

Former United States President Franklin D. Roosevelt signed the Social Security Act into law on August 14, 1935. One of the benefits provided to United States citizens by the Social Security Act is a payment of “social insurance” to people over the age of 65 – today, the youngest age to receive disbursements is 62 – after they retire.

Social Security has unarguably helped millions of Americans live better lives. However, if you’ve listened to the news even loosely over the past few years, some news sources reference the potential end of Social Security disbursements for future generations.

But why?

First, let’s cover the basics of Social Security, its principles, and where all that money flows, anyways.

Get off my lawn and give me my Social Security check!

Paying Taxes Towards Social Security

Americans pay taxes including FICA (Federal Insurance Contributions Act), which includes Social Security and Medicare.

Employees have 6.2 percent of all gross receipts deducted up through $127,200 (per 2017 figures) for Social Security, of which their employers match equally. Together, this 12.4 percent of untaxed wages and salaries is contributed to the following:

  • 72% – Trust fund that pays out monthly benefits.
  • 16% – Fund that distributes Social Security to disabled persons.
  • 9% – This portion enters a fund that sends payments to surviving immediate family members of deceased employees.
  • The remaining 1-odd percent goes to administrative costs.

Wait – What If There’s Money Left Over?

Yes, at the end of each fiscal year, money collected in the name of Social Security payments isn’t always less than what was required to keep retired, disabled, and widowed family members going.

All that money is invested in bonds to help build interest and combat the detrimental powers of inflation.

 

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