“I hear mortgage underwriters are checking with the IRS to verify our income. Current year returns haven’t been processed yet. This is holding up mortgage approvals. Right?” Nacine asked.

He had just received this call from Nacine and had no information about his situation. I told him that I would be more than happy to answer his question. And would you mind sharing with me what prompted the question.

She was in a hurry. Nacine was preparing to make an offer on a house. The offer only allowed him so many days to obtain financing from her. She did not want to lose her deposit due to IRS delays.
OK, this is what I told Nacine:

• Regular W-2 employees: Mortgage lenders want to see IRS transcripts from the previous two filing years. From January 1 to April 15, IRS transcripts are not required for the past year. Mortgage insurers accept pay stubs and employer verification as proof of current income.

• 1099 Employees: Mortgage lenders treat 1099 employees (independent contractors) as self-employed.

• Self-Employed: No pay stubs and no employer available to verify current income. Yes, mortgage lenders want to see IRS transcripts from the previous two filing years. But concern that business income matched the previous two filing years prompted mortgage underwriters to demand last year’s profit and loss statements. Certification from your tax preparer is required.

I asked Nacine which category it belonged to. “He’s self-employed,” she said. Nacine summarized what I said as follows: “Mortgage lenders do not stop processing mortgage loans during the period between January 1 and April 15. My tax preparer must prepare my Profit and Loss Statement and certify it. I really need to do this before I make an offer on a house. That would be best.”