Mortgage rates have been at levels not seen before in history. They have stayed low since March and have even gone below historic levels acheived in April. Refis were through the roof. While home sales have slowed, mainly due to a choked supply of housing, housing prices have also soared. Many have lost jobs. and we all fear more jobs and industries are precarious to additional setbacks from the virus. This environment forces lenders to be more picky, even though refis typically result in lower payments, they still need to understand if you will be employed in a year, if those savings will be extinguished, not to mention with a flood of people looking to refi or buy, lenders have the choice of who to lend to.
What Does This Mean for Me?
As with any mortgage application, whether refi or new, you need to have your taxes in order. You need to prove current income and employment as well as demonstrate past employment and earnings. This is mainly done to create not just a picture of your earning potential but also your past behavior. Seeing your current savings and recent income creates a view into your spending habits and helps create a picture of your financial responsibility.
So. First, get your taxes in order. You are most likely going to need the last two years of taxes, but potentially three, depending on your employment history, income fluctuation, and industry.
You are going to need your tax documents digitally, in some form. Whether you are scanning them yourself or already have digital copies, know that in these days of email and coronavirus, your tax documents will need to be in PDF form. There are plenty of online accounting software options available. The one we just linked to may not be a perfect fit for you, but just an example of what to look for and compare.
These softwares can help you organize your documents for the lender.
Where it can get tricky is if you have a tricky tax return, such as with additional consulting companies, properties, split properties, non-income related assets, investments, big deductions, etc.
The best advice we can give here, in today’s climate, is to relax and be prepared for a lender to ask for WAY WAY more information than you believe is reasonable. Remember, they are looking for both a reason to give you an offer and also eliminate you vs someone else. So be patient. Roll your eyes at home, but be polite and quick with your responses. Many of them will require a lot of legwork to find. However, keep your eyes on the prize, because once you get through this, you’ll have deep savings for a long time.
We are not far away from year end, and while taxes aren’t technically due for another four months, lenders will start asking for them before April 15. So look at this process as if you are going to need to document and show lenders 2020 the same way they are looking for 2019 and 2018. Whatever your lender is asking for from previous years, make certain you have the same 2020 tax docs to match.