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When you’re self-employed, own a small business, or earn income from non-traditional sources, proving your income for a mortgage without tax returns can feel challenging. Fortunately, several mortgage options are available that don’t require full tax documentation. Here’s how to prove your income without tax returns when buying a home.
Why Lenders Require Income Verification
Lenders assess your income to ensure you can repay your mortgage. Tax returns are typically used because they provide a comprehensive view of your financial history, including earnings, deductions, and net income. However, if your taxable income doesn’t accurately reflect your earning power due to business write-offs or variable income streams, you might need an alternative approach.
Ways to Prove Income Without Tax Returns
1. Bank Statement Loans
Bank statement loans use your recent bank deposits as proof of income, instead of tax returns. Typically, you’ll need to provide 12-24 months of personal or business bank statements to verify your cash flow. This option is ideal for self-employed individuals, gig workers, and freelancers whose tax returns might show lower income due to deductions. Learn more about these loans here: Bank Statement Loans
2. Profit and Loss Statements
For some self-employed borrowers, a profit and loss (P&L) statement prepared by a certified public accountant (CPA) can serve as an alternative to tax returns. This document provides a snapshot of your business’s financial performance, reflecting income, expenses, and net profit.
3. Asset Depletion Loans
Asset depletion loans are another alternative, allowing you to qualify based on your total liquid assets, such as savings, retirement funds, and investment accounts. Lenders typically divide your total assets by a set term (e.g., 240 months) to estimate your monthly income. This approach is popular among retirees or high-net-worth individuals.
4. DSCR Loans
Debt Service Coverage Ratio (DSCR) loans are designed for real estate investors. These loans qualify you based on your property’s cash flow rather than personal income. Learn more about DSCR loans here: DSCR Loan
5. 1099 Income Verification
If you’re an independent contractor, some lenders accept 1099 income statements as proof of income. These statements show your earnings without the need for tax returns, making them a straightforward alternative.
6. Using Rental Income
Real estate investors can use rental income to qualify for a mortgage without personal tax returns. Lenders may use the property’s rent roll, leases, or a rental appraisal to verify cash flow. This is a common approach for DSCR loans.
Tips for Improving Your Approval Chances
- Maintain Consistent Deposits: Lenders prefer stable, regular deposits over time.
- Separate Personal and Business Finances: Keep clear financial records to avoid complications.
- Work with a Specialist Lender: Choose lenders who specialize in non-traditional income verification, such as those offering DSCR or bank statement loans.
Frequently Asked Questions (FAQs)
Can I get a mortgage without tax returns if I’m self-employed?
Yes, you can use alternative documentation like bank statements, P&L statements, or asset depletion to qualify.
What is a DSCR loan?
A DSCR loan qualifies you based on the rental income of an investment property, not personal income.
Do bank statement loans have higher interest rates?
Yes, these loans typically have higher rates due to the perceived risk of lower income verification.
Read Next
Ready to explore your options? Check your loan options today and discover the best mortgage for your unique situation.
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
