Contrary to widespread opinion, you can get a mortgage in New York City without providing your tax returns. Read on to learn more.
New York City, for all of its flaws, is one of the most desirable places to live throughout the world. From business opportunities to entertainment, New York City offers something for everyone. Nevertheless, New York City does have its challenges, one of which is actually finding and financing a home.
Finding a residence can be difficult due to limited supply and a fast-moving real estate market. However, that isn’t your only challenge. Financing can open up its own can of worms. Compared to other cities in the country, obtaining a mortgage in New York City can be quite an involved process. This is due to the sheer amount of information that is required.
Ultimately, if you are trying to obtain a mortgage in New York City, you may come across a situation where you need to provide one year (or several years) of tax returns. Even though you may view this as superfluous or unnecessary information to obtain a mortgage, many lenders will ask for them.
While you may think there is no real way to avoid this request, we are here to tell you otherwise. Working with an organization like Bank of England Mortgage, there is a way to bypass this tax return requirement. Whether or not you decide to proceed, it is worthwhile knowing about this alternative so that you can make an informed decision for yourself.
The Tax Return Requirement
Let’s start with the basics. There isn’t a statute or regulation that absolutely requires lenders to ask for a borrower’s tax returns. This is a common practice in New York City, however, because it obviously provides lenders with a wealth of information. By obtaining your tax returns, lenders are trying to determine your income. Quite obviously, they want to ensure that you have the financial capacity to pay off your mortgage. In their minds, the worst case scenario is a repeat of the 2008 Financial Crisis, where lenders relied on borrowers’ “stated income” when deciding whether to approve a mortgage.
The world has changed since then. Requesting a borrower’s tax returns may intuitively make sense, but there are some complications (as we will discuss below). Depending on the lender, some may require only one year of tax returns while others may require more than one year. In addition, many lenders prefer to obtain your tax returns directly from the Internal Revenue Service, so you may be asked to fill out IRS Form 4506-T in order to comply.
Avoiding the Tax Return Requirement: Several Options
As you can see, many lenders are incentivized to ask for your tax returns. It is often baked into their normal terms and conditions before approving your mortgage.
However, even though a tax return requirement may be the normal course of business for lenders, it may put you as the borrower in an awkward situation. Even if you have nothing to hide, there may be certain situations where submitting your tax returns could be difficult. This isn’t the end of the story, though.
By looking at three basic case studies, you will see that there are certain circumstances where you can actually obtain financing without submitting your tax returns.
The Self-Employed Borrower
First, let’s say that you are self-employed. You recently started a small business that continues to grow. The business is just you at the moment, yet it already delivers steady free cash flow. You have found a great apartment on the Upper East Side that you want to purchase, yet you obviously can’t pay for the entire apartment with cash. Therefore, you have no choice but to obtain financing. You go to your local bank and are told that you need to provide at least two years of tax returns in order to proceed. Along with this, the bank will specifically look for your net income (after deductions and write-offs) on your tax returns.
While you would be happy to comply with all of these requests, there is just one problem. As a self-employed individual, it is in your interest to write off as much income as possible. In other words, it may appear that you are less creditworthy than you actually are. Because of this, it may be more difficult for you to qualify for mortgage financing, meaning that your dream of moving into this new apartment may already be over.
But all hope is not lost. There are third-party organizations that can help self-employed individuals obtain financing without providing their tax returns. For instance, Bank of England Mortgage provides loans for self-employed buyers that do not require tax returns. Instead, Bank of England Mortgage allows for twelve months of bank statement deposits to qualify. Along with this, as little as a 10 percent down payment is required to proceed. Bank of England Mortgage offers loans of up to $10 million, but exceptions are possible.
Working with a company like Bank of England Mortgage, a self-employed borrower faces significantly fewer barriers in obtaining the financing for his or her dream home. He or she can obtain financing based on their true financial situation, rather than a distorted view as defined by big banks.
The Real Estate Investor
For this next case study, let’s assume that you are a real estate investor. You are interested in purchasing an apartment in Tribeca, but you don’t intend to live in the apartment. Rather, you see the apartment as an investment that you intend to flip at a later point in time.
In order to purchase the apartment, you will need to obtain a mortgage. Like the self-employed borrower, you go to a bank and the bank officer asks you for two years of tax returns. And like that self-employed individual, you may encounter more problems than you expect. This is for a different reason, however. Because you are an investor, the sale of assets (like homes that you have previously bought and sold) is not included in your net income. Your tax returns can also contain many write-offs, which place you at a further disadvantage. Therefore, you may feel the need to resort to short-term private money loans (which can be expensive) or a cash payment.
Bank of England Mortgage can also help here. It offers 30-year amortized loans without balloons that, once again, do not require tax returns. Loans are available up to $6 million, although there may be exceptions. Also, you may put down as little as 20 percent when the market rent covers the proposed mortgage payment, and as little as 25 percent when market rent is less than the proposed mortgage payment. Ultimately, it’s a great deal if you are a real estate investor.
The “Cash Rich” Purchaser
Finally, one more case study. Let’s say you are a New York City resident who has rented for your early professional life. You have a great job and have saved up a significant amount of liquid assets. At the same time, you have fallen in love with a starter apartment in Long Island City. Approaching your bank, you express your interest in obtaining financing to purchase the apartment. Once again, the bank asks for two years of tax returns before proceeding. While you have liquid assets (and can perhaps make the purchase entirely in cash), you may not show enough net income on your tax returns to qualify for conventional financing.
Enter Bank of England Mortgage. If you do not want to make your purchase in cash, Bank of England Mortgage can offer something called an asset depletion loan. To obtain this loan, you would not need to provide your tax returns. In fact, if you have liquid assets that exceed 110 percent of the apartment’s purchase price, income verification is not required. You would get credit for all liquid assets that you have, which include retirement or brokerage accounts and the cash value of life insurance policies. Like the other case studies above, you would be able to obtain a loan of up to $10 million (higher by exception) and could take advantage of down payments as low as 15 percent.
Options are Available
As you can see, there are exceptions to providing your tax returns when purchasing real estate in New York City. These programs sponsored by Bank of England Mortgage are available for condos, townhomes, and two to four unit properties, but unfortunately, they are not available for co-op buildings. Most co-op boards will still want to see your tax returns and they frequently have debt-to-income ratio requirements.
In sum, we encourage you to research your options—whether it means working with Bank of England Mortgage or someone else. Many large banks are inflexible and will require at least one year of your tax returns in order to finance your purchase. By contrast, a residential mortgage lender like Bank of England Mortgage can make the financing process extremely easy—all while eliminating the need for you to provide your tax returns.
We are proud to offer loans that big banks do not offer. Our unique loan programs empower the individual borrower and help them purchase their next great home. Should you wish to work with us (or if you have any questions), do not hesitate to reach out.