Thinking of Refinancing? Before a Mortgage Lender will issue you a Mortgage Loan, they need to get an idea of what you can afford. One of the most telling ways for a Lender to get a glimpse of your affordability is by going over the last year or two (depending on the employment or loan type) of Tax Returns as well as other requested Financial Documents (These may include bank statements, pay stubs and other various documents.); This is otherwise known as the “2 Year Threshold”.
Mortgage Lenders will be looking over your debt-to-income ratio (DTI). The equation is as follows:
Monthly Debt Payments (Including Future Monthly Mortgage Payments, Taxes, Insurance, and Mortgage Insurance) ÷ Monthly Income (Before Taxes) = Your Debt-to-Income Ratio (DTI)
The lower your Debt-to-Income, the greater chances you have at Refinancing.
Why do Lenders need my tax returns?
Tax Returns can give Mortgage Lenders an idea of your income history; whether or not you have a steady & stable stream of incoming flowing-in and how much you make can determine how much home you can afford. Also, showing your on-top of paying your taxes can give you a standing ovation inside the responsibility arena.
What kind of Income Documents will a Mortgage Lender request?
In general, borrowers are usually asked for the following:
1-2 years of personal tax returns
1-2 years of business tax returns (if you own a business)
1-2 years of W-2s or 1099s
The requested paperwork can also vary depending on your work situation. For example, If you’re a freelancer, Mortgage Lenders will typically ask you for a copy of your P&L (Profits & Losses). Statement E is needed if you have any real estate investments.
To get a better idea of how much home you can afford, check out our Mortgage Affordability Calculator click here.
For a detailed breakdown of interest rates and monthly payments, click here to have our digital mortgage rep Amy help you.
If you would prefer to speak with one of our Home Loan Experts, please feel free to contact us at 201-393-0200 or email@example.com