Can I Get a Mortgage With One Year of Tax Returns?

Getting approved for a mortgage can be challenging, especially if you don’t have the typical financial documentation lenders want to see. The majority of mortgage lenders require you to provide one to two years of tax returns, and if you haven’t filed, they will not be willing to work with you. However, there are some options for getting a mortgage with only one year of tax returns.

Why Do Lenders Want Tax Returns?

When you apply for a mortgage, lenders want to verify your income and make sure you can afford the monthly payments For salaried employees, lenders can simply look at W-2s and paystubs But for self-employed borrowers or those with nontraditional income sources, tax returns are the main way lenders can document your earnings.

By looking at two years of returns lenders feel they get a reliable picture of your income trend and earning potential going forward. However not everyone has two years of tax returns readily available. If you’re newly self-employed, have a fluctuating income, or just didn’t file taxes, providing two years of documentation may be impossible.

When One Year of Tax Returns May Work

While most lenders stick firmly to the two-year requirement, some situations allow for only one year of returns:

• You’re newly self-employed – If you recently started your own business, you may only have one year of tax returns to show. Some lenders will approve one year of returns for a new business owner.

• You had a one-time income event – If you had a major windfall or loss that skewed your income for one year, lenders may disregard that tax return and focus only on your normal income shown on your most recent return.

• You were in the same field before going solo – If you worked in the same industry as an employee before starting your own business, some lenders may approve just one year of self-employment tax returns.

• You have stellar credit and assets – Borrowers with an excellent credit score, a large down payment from savings, and minimal debts stand the best chance of getting approved with only one year of tax returns.

Alternative Options for Qualifying

If you don’t fall into one of the exceptions above, you still have a few options for getting approved with limited tax return documentation:

• Non-QM loans – Also called non-prime, non-conforming, or alternative loans, these mortgages come from lenders willing to bend the rules on income documentation. However, you’ll likely need pristine credit and more cash reserves.

• Bank statement loans – Some lenders will review several months of bank statements to assess your income stability. But you may need a higher credit score and down payment for these options.

• Adding a co-borrower – A co-borrower with ample income and tax returns may complement your profile and help you get approved together.

• Using assets to qualify – Programs like asset depletion loans consider your assets instead of income when approving your loan. But they require a substantial down payment from those assets.

• Waiting to apply – If you’re newly self-employed, waiting until you have two years of returns may be the easiest option.

Tips for One Year of Tax Returns Mortgage

If you want to try qualifying for a mortgage with only one year of tax returns, keep these tips in mind:

• Highlight previous experience – Emphasize any paid work you did in the same field before going solo. This shows continuity even without two full years of self-employment returns.

• Get your returns done ASAP – To apply with your most recent year’s tax returns, you’ll need to file as early as possible. Having completed returns is essential.

• Gather other proof of income – Bank statements, profit/loss statements, 1099s, and invoices can all help substantiate your income level.

• Avoid write-offs – Business deductions lower your income level, so limit write-offs when possible over the past year.

• Know your numbers – Tax returns only show one snapshot. Be ready to explain income fluctuations and demonstrate current earning ability.

• Save for a larger down payment – Increasing your down payment gives you a better shot at approval with one year of returns.

• Reduce debts – The lower your recurring debts, the easier it will be to qualify by limiting risk factors. Pay down credit cards and auto loans if possible.

• Shop multiple lenders – Local banks and credit unions may be more flexible than national lenders when it comes to skimpy tax return history.

Alternatives If You Can’t Provide Tax Returns

If you’re completely unable to provide any tax returns, your options are more limited, but mortgage approval is still possible:

• FHA loans – FHA loans may offer approval with just W-2s or paystubs for salaried borrowers if automated underwriting allows.

• VA loans – VA loans can provide approval with one year of returns plus other income verification for self-employed veterans.

• USDA loans – For low-income borrowers in rural areas, USDA lending programs offer flexible income documentation options.

• Non-QM loans – Again, non-QM lenders provide customized programs with reduced income documentation requirements but higher costs.

• Asset depletion – These loans base approval on your assets rather than income, so tax returns may not be needed if you have substantial savings.

• Adding a co-signer – Having a financially strong co-signer on your loan application can help balance out any missing tax return documentation.

Partner With the Right Mortgage Lender

While most lenders will be hesitant to approve a mortgage with only one year of tax returns, it’s not impossible to find one willing to work with your unique situation. The key is partnering with lenders familiar with self-employment and alternative income sources. Mortgage brokers can help match you with the right lender and loan program to fit your needs. Don’t give up if you can’t provide two full years of taxes – make sure to explore all your options. With persistence and the right lender, you can still achieve homeownership, even with limited tax documentation.