Getting a mortgage is challenging, and without filed tax returns, it gets even harder. Most lenders require tax returns to verify income. Without them, you could face loan denial, higher interest rates, or strict lending terms. Even if you have stable earnings and good credit, missing tax filings might raise concerns.
In this guide, we cover how unfiled returns impact mortgage approval (and what you can do to fix the issue).
Why Tax Returns Are Essential for Mortgage Approval
Buying a home is not just about finding the perfect property. Lenders need proof that you can afford the mortgage, which means a lot of paperwork.
First, lenders will request proof of income, including your W-2s, 1099s, and recent pay stubs. This verifies whether you have a stable income. If you’re self-employed or a business owner, expect more scrutiny.
Next, lenders assess your credit score and debt-to-income ratio (DTI). At this stage, lenders decide whether you are financially stable or overextended. If too much of your income goes toward debt, lenders may view you as a risk.
Finally, they require tax returns, usually from the past two years.
How Tax Returns Affect Mortgage Eligibility
These documents provide a full picture of financial health, which helps lenders assess risk before approving a mortgage.
- Verifying stable income: Tax returns confirm that your income is consistent over time. If your reported income fluctuates significantly or is not documented through tax records, lenders may question your financial stability.
- Matching IRS Records: Lenders cross-check your tax returns with IRS records (Form 4506-C). Missing or mismatched filings create red flags, potentially delaying approval. Besides, the IRS also has access to certain financial records, including bank accounts. Learn more about how the IRS can access your bank records.
- Impact on Debt-to-Income Ratio: Your tax returns directly influence how lenders calculate your DTI ratio.
- Compliance concerns: Mortgage lenders want borrowers who meet financial obligations, including tax compliance.
How Mortgage Programs Handle Unfiled Tax Returns
Conventional Loans (Fannie Mae & Freddie Mac)
- Require at least two years of tax returns for self-employed borrowers.
- If a borrower is a W-2 employee, tax returns may not always be required, provided their income is consistent and pay stubs offer sufficient documentation.
- Lenders will request IRS Form 4506-C to verify reported income matches tax transcripts.
FHA Loans
- Require two years of tax returns for most applicants.
- If taxes are unfiled, the borrower must either submit all missing returns before applying or provide an IRS-approved payment plan.
- Borrowers with outstanding tax debt must prove they are in a repayment plan and have made at least three consecutive on-time payments before loan approval.
VA Loans
- VA lenders require at least two years of tax returns for self-employed applicants.
- W-2 employees may not need tax returns if other income verification documents suffice.
- Unfiled tax returns can be a dealbreaker unless the borrower provides an IRS repayment plan and evidence of compliance.
USDA Loans
- Borrowers must provide two years of tax returns, regardless of employment type.
- There is no way to bypass tax return requirements unless a non-taxable income source (such as Social Security) is the borrower’s primary income.
The Consequences of Unfiled Tax Returns on Your Mortgage Approval
Owing taxes without filing can lead to an IRS tax lien, which may affect your assets, including future home purchases. Lenders avoid this because:
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- A tax lien takes priority over a mortgage, meaning that if you default, the IRS gets paid before the bank.
- It signals financial instability, making lenders unwilling to approve your loan.
- Most lenders will not approve a mortgage unless the lien is resolved or you are in an active repayment plan with the IRS.
Are There No-Tax-Return Mortgage Options?
Yes, but they come with trade-offs. Some lenders offer alternative mortgage options for borrowers who have not filed tax returns. However, these loans typically require higher down payments, stricter lending conditions, and higher interest rates.
1. Bank Statement Loans
- Ideal for self-employed borrowers or freelancers who may not have traditional W-2 income.
- Lenders review 12–24 months of bank statements to verify income stability instead of requiring tax returns.
- Most lenders require a 10–20% down payment, though some accept as low as 10% depending on the borrower’s profile.
- A 680+ credit score is typical, but some lenders approve 600–620 with stricter terms and higher interest rates.
2. Asset-Based Mortgages
- Designed for high-net-worth individuals who may not have a steady taxable income.
- Approval is based on liquid assets (e.g., stocks, retirement funds, savings) instead of tax returns.
- Lenders require borrowers to have sufficient assets to cover several years of mortgage payments.
3. Hard Money Loans
- Short-term, high-interest loans based on property value rather than income history.
- Typically used by real estate investors or those who need quick financing.
- Interest rates can range from 8% to 15%, making them a costly alternative.
4. Private Lenders & Non-QM Loans
- Private mortgage lenders and Non-Qualified Mortgage (Non-QM) loans offer flexibility for borrowers who do not meet traditional requirements.
- These loans come with higher interest rates, large down payments, and stricter conditions.
What to Do If You Have Unfiled Tax Returns?
If you have not filed your tax returns and want to qualify for a mortgage, your first step is not applying; it is fixing your tax situation.
Filing your missing taxes before applying for a mortgage increases your chances of approval.
How to File Your Missing Tax Returns
Step 1: File Your Missing Tax Returns
- Gather W-2s, 1099s, IRS transcripts, and other income documents.
- File all unsubmitted returns as soon as possible (the longer you wait, the higher the penalties).
- If you’re unsure about how to file, consult a tax professional.
Step 2: If You Owe Taxes, Set Up a Payment Plan
- Apply for an IRS Installment Agreement to pay off your tax debt over time.
- Ensure you have made at least three consecutive on-time payments before applying for a mortgage.
- Avoid IRS tax liens by staying compliant with payment plans.
Proving Income Without Tax Returns
If your tax returns are unavailable, some lenders may accept:
- Pay stubs and W-2s (for salaried employees)
- 1099s and business bank statements (for self-employed borrowers)
- Profit and loss statements from an accountant
- Social Security or pension income documentation
While these alternatives may work, many lenders still require tax returns for final loan approval. The best approach is to file missing returns as soon as possible—not only to expand your mortgage options but also to avoid potential IRS enforcement actions, such as tax liens that could block financing.
Resolving unfiled taxes before applying for a mortgage reduces loan obstacles and helps secure better terms.
Get Professional Help Today
Every day you wait to file your taxes could delay your homeownership dreams. Our experts can help you file missing returns, set up payment plans, and get mortgage-ready.
Frequently Asked Questions
Yes, but it is harder. Most traditional lenders require tax returns, but alternatives like bank statement loans, asset-based mortgages, or Non-QM loans exist. These options bypass tax return requirements but come with higher down payments (10–20%), interest rates, and stricter terms.
Yes, but you may need to set up an IRS payment plan and show proof of regular payments. Lenders prefer borrowers who have a structured repayment agreement rather than those with unresolved tax debt.
Most lenders require two years of tax returns, though some may ask for three. If you are self-employed, lenders typically average your income over those years to determine eligibility.
Yes, but only if you have an active IRS repayment plan and a history of on-time payments. Some lenders require a formal agreement with the IRS before approving a mortgage.
Lenders request IRS tax transcripts using Form 4506-C and check for tax liens, since liens are public records. If you owe taxes, it will likely be flagged during the loan process.
Traditional lenders usually require tax returns to verify income, making approval difficult. Some alternative lenders offer options, but these usually come with higher costs and stricter terms.
Most traditional lenders will not approve a loan if tax returns are missing. Some alternative lenders offer bank statement loans, but these come with higher costs.
Yes, most mortgage lenders require tax transcripts, especially for self-employed applicants. They use IRS Form 4506-C to verify income consistency.
