Updated: May 30, 2024

How to Qualify for a Mortgage With Unfiled Tax Returns

mortgage and unfiled returns

Qualifying for a mortgage can be challenging, but it's even harder if you have unfiled tax returns. Here's the truth — most lenders won't give you a mortgage if you have unfiled tax returns, but it can be possible. 

Ready for homeownership but worried about your unfiled returns? This guide is for you. It explains why you generally need a tax return to get a mortgage, how to get a mortgage with unfiled tax returns, and what to do if your lender requires a tax return.

Why Mortgage Lenders Ask for Your Tax Return

A mortgage is the biggest loan most people will ever take out, and your lender needs to feel confident that you can repay this large sum of money. To learn about your financial situation, the lender looks at your proof of income, tax returns for the last year or two, credit report, and other financial documents. 

You may send your tax returns directly to the lender, or they may use the Income Verification Express Service to get your information from the IRS. If you cannot provide this information, most lenders won't approve your mortgage application.

Mortgages You Can Get Without a Tax Return

A very small handful of lenders may be willing to give you a no-tax-return mortgage. They generally fall into the following two categories:

Institutional No Tax Return Mortgage Lenders

Instead of looking at your tax returns, these lenders take a close look at your income documents and your bank account statements. Because they work with high-risk clients, they typically charge higher interest rates than other lenders.

Additionally, you cannot get an FHA loan or a VA loan without a tax return. These loans have low down payments of 0 to 3% which can save you a lot of money when you're buying a home. In contrast, if you get a no-tax-return mortgage, you should expect to pay 10 to 20% or more as a down payment. 

Owner-Carry Mortgage Lenders

In some cases, you may be able to make payments directly to the property owner. These are called owner-carry mortgages, and because they are handled between individuals, they don't have the same stringent requirements as traditional mortgages. 

You need to navigate these loans very carefully — before signing anything, you should consult with an attorney. Owner-carry loans can be useful in some situations, but they can be risky or even predatory in others. 

Also, keep in mind that many owner-carry arrangements come with a balloon payment. You make monthly payments for anywhere from a year to a decade. Then, you have to pay off the remaining value of the property in a lump sum called a balloon. 

To cover the balloon payment, you typically have to go to a traditional lender, and you may struggle to obtain a loan if you have unfiled returns. 

What to Do If You Want a Mortgage and Have Unfiled Returns

You're ready for homeownership but you have unfiled returns… what should you do? You can explore the options above, but they will likely cost you more money in the long run. The best option is to deal with your unfiled tax returns. A tax pro can help you file your unfiled returns.

If you have a refund, you can claim that three years after the filing due date. Other consequences for unfiled returns also vary depending on the year. So, in some cases, addressing unfiled returns puts extra money in your pocket. If you owe tax, however, you will need to make arrangements with the IRS or your state tax agency. A tax pro can help you apply for penalty waivers and negotiate a payment arrangement on your account.

Can You Obtain a Mortgage If You Have Unpaid Taxes?

If you file your returns and owe tax, that won't necessarily prevent you from qualifying for a mortgage. However, your mortgage lender will want to see proof of your payment arrangement, and they will take these payments into account when calculating your debt-to-income ratio. 

Most mortgage lenders want to see that you've been making payments for a few months. If you're in the first or second month of your installment agreement, you may want to wait a bit before applying. 

Don't be afraid to ask the loan officer about your situation — they deal with all kinds of borrowers, and they can give you advice on what to expect during the home-buying process if you have unpaid taxes.

Applying for Mortgages When You Have a Tax Lien

Sometimes, even if you set up a payment arrangement, the IRS will still place a lien on your assets. A lien is the government's legal claim to your assets. If you sell assets while a lien is in place, the government has the right to take the proceeds of the sale. 

The IRS can also place a lien on your assets if you have unfiled returns. When you don't file your returns, the agency can assess how much you might owe and send you a bill. Usually, this bill is more than you actually owe, and if you don't respond, the IRS can issue a tax lien. 

For best results, you should work with a tax pro to get the lien removed. If the IRS refuses to remove the lien, you need to get it subordinated. By subordinating the lien, the IRS agrees that your mortgage lender has priority if your property ever goes into foreclosure.

Get Help Applying for a Mortgage When You Have Unfiled Returns

If you have unfiled returns, unpaid taxes, or a tax lien, you should contact a tax pro to help you. They can help you file returns, set up payment plans, or deal with tax liens so that you can confidently apply for a mortgage. 

Don't let tax issues stop you from becoming a homeowner. Instead, get help today. Search our directory to find a tax pro in your local area who is experienced with these issues. You can use the search box below.


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