Can You Get a Mortgage with Unfiled Tax Returns?

Mortgage with Unfiled Taxes

When you apply for a mortgage, the lender wants to be sure you can repay the loan. To assess that, they look at your financial situation which almost always includes your tax returns. The majority of mortgage lenders require you to provide one to two years of tax returns.


However, there are a small handful of lenders who may be willing to process a loan without seeing your tax returns. Here’s what you need to know if you’re trying to get a mortgage with unfiled tax returns.

No Tax Return Mortgages

Mortgage lenders use your tax returns to verify how much you’re earning. If you don’t have a return, they may be willing to look at your bank statements, 1099 forms, and other financial documents. Again, only a very small number of lenders will work with borrowers who have overdue tax returns.

Mortgage lenders cannot underwrite your loan through Fannie Mae with past due tax returns. They must do it on their own or through the Freddie Mac underwriting systems. As a result, you will need to make a significant down payment likely to be at least 20% of the home’s value. If you have no returns for certain years, you won’t be able to qualify for an FHA or VA mortgage which require minimal down payments of 0 to 3%.

Lenders who process mortgages without tax returns will view you as a riskier lender, and they will charge a higher interest rate than most other lenders. This means your home will cost a lot more in the long run.

Owner-Carry Mortgage with No Tax Return

You may be able to get an owner-carry mortgage without current returns. These mortgages are when the owner of the property lets you make payments directly to them on the property. Owner-carry mortgages can work well in some situations, but in others, they can be predatory and risky. You may want to consult with a real estate attorney before entering into an owner-carry mortgage.

Many owner-carry mortgages require you to make a balloon payment. For instance, you may make monthly payments for three to five years and then owe the remaining amount of the property’s value as a balloon payment. To cover the balloon, most people go to a traditional lender, and at that point, you will struggle to obtain financing with overdue tax returns.

Why Lenders Want Your Tax Returns

When you take out a mortgage, the lender could be providing you with $100,000 to $1 million or more. They want to be sure that you can repay these funds so they look closely at your financial situation.

Lenders use your tax returns to verify your income. They also look at your W2s or other income statements. Not having verifiable tax returns is a red flag that you might not be responsible enough to pay your mortgage.

As indicated above, many lenders cannot even process a mortgage without a tax return. If you’re in this situation, you should get current on your returns.

Filing Tax Returns Before Applying for a Mortgage

Some people simply apply for a mortgage, get qualified, and pick out their dream home. For most people, however, the process isn’t as easy. You may have to spend some time preparing your finances before you’re ready to apply. Don’t worry — you’re not alone, and you can get help with this process.

There are real estate agents who work with clients that have less than perfect credit. These agents give their clients advice about how to set up their finances so they can obtain a mortgage. In most cases, however, they focus on consumer liabilities like credit cards. To get help with unfiled tax returns, you should consult with a tax professional.

Filing past due tax returns or paying down liabilities can take some time, but these actions will put you in a stronger financial position. When you’re ready to apply, it will be easier to qualify for a low-down payment mortgage with a lower interest rate than it would be otherwise.

Getting a Mortgage When You Have a Tax Lien

In some cases, if you don’t file your returns, the IRS will file a return on your behalf (SFR), and you will owe the assessed amount. Then, the IRS can place a tax lien on your property for the unpaid taxes. They can also place a tax lien on your property if you’ve filed your tax returns but haven’t paid the tax bill.

A tax lien is the IRS’s legal claim to your property, and it can make obtaining a mortgage challenging. You may want to contact a tax attorney to get the lien removed or to set up a payment plan with the IRS.

Sometimes, the tax liens stay in place while you’re making payments, and in this situation, you may need to get a subordination agreement from the IRS. This states that the IRS is second to the lien placed by the mortgage lender on your home. If the lender has to foreclose, this ensures that they get paid first and the IRS gets paid second.

Applying for a Mortgage When You Owe Taxes

If you’re making payments on the tax bill, you will need to show the mortgage lender your payment agreement. Most lenders will want to see a solid history of payments — if you’re just on month one or two, you may need to wait a bit before you can qualify for the mortgage.

Generally, you will not be able to get a mortgage if you have unpaid taxes. Again, lenders want to be confident that you can repay the mortgage. They are hesitant to work with people who show signs of not meeting their financial obligations.

Get Help with Unfiled Returns and Tax Bills

At The W Tax Group, we specialize in helping people who have unfiled tax returns and late taxes owed. We can help you with your overdue tax returns and back taxes so that you can get a mortgage.

Don’t let being behind on your tax returns or taxes affect your dream of homeownership. Let us help you take care of your IRS and state tax issues so you can move forward and buy a home. To learn more, contact us today.