Tax season mortgage papers: which year the lender reads

Last updated February 12, 2026.

What to have ready at tax time

For a Fannie Mae conventional loan, have two years of federal returns ready, signed or as IRS transcripts. Add your signature on Form 4506-C, plus business bank statements if your returns run thin. I'll just say "Fannie Mae loan" from here on.

Between January and April, your newest return is either filed or about to be, so timing gets tricky. Your accountant's copies make gathering quick. Deciding the year in Step 1 takes longer.

1. Signed federal returns. Your personal returns and, in some cases, business returns for the past two years.
2. IRS transcripts. IRS-issued copies of those returns, which a lender can use instead.
3. Form 4506-C. Your signed permission for the lender to request transcripts.
4. Business bank statements. Only if a bank-statement loan is on the table.
5. Form 1098. If you already have a mortgage and paid $600 or more of interest on it in a year, you'll generally get one from the mortgage holder.

Sources: Fannie Mae Selling Guide B3-3.5-01 and B3-3.1-02, and the IRS Income Verification Express Service. These are Fannie Mae conventional rules, and Fannie Mae allows shorter histories in some cases. Other programs and other lenders set their own document lists.

Step 1: Decide which tax year the lender reads

Decide which tax year you want the lender to read before you file, because filing your new return changes what the lender looks at. Once it's filed, your newest return becomes part of the picture.

A Fannie Mae loan rests on a two-year history of your earnings, checked against your filed federal returns. So the returns you've filed set which years the lender sees.

Say your business had a strong 2025 after a slower 2024. Or the reverse. Either way, the new return moves the average, and I want to see your numbers before that happens. Ask your loan officer to run the file both ways, with and without the new return, and compare which one shows your income better.

Fannie Mae's guide doesn't say which year to file before you apply. I make that call with you for the loan. Which year to file and what to deduct is tax advice, so that part belongs to your CPA.

You'll know this step is done when you know which year's return goes in the file and your CPA knows the timing.

Step 2: Pull two years of signed returns or transcripts

For a Fannie Mae loan, a lender generally wants a two-year history of your self-employed earnings. Your signed returns for those years show it, or the IRS can send transcripts of them.

A transcript is a record of your return that the IRS itself issues. You can let a lender get one through your IRS online account or by signing Form 4506-C through the lender.

Two years isn't the only path. For a conventional loan, Fannie Mae's Selling Guide lets a lender accept under two years of self-employment if your latest signed returns cover a full 12 months in the current business. It also allows one year of returns in some cases, such as a business that has existed for five years.

Source: Fannie Mae Selling Guide B3-3.5-01 for returns and transcripts, and B3-3.1-02 for Form 4506-C.

If some of your pay comes from a W-2 job with bonus or commission, the averaging works a little differently. I cover that in how lenders average two years of pay.

This step is done when you have both years' returns signed, or you know the lender will pull transcripts instead.

Step 3: Gather business bank statements if your returns show less

If your deductions shrink the income on your returns, ask whether a bank-statement loan fits. I close those loans through lenders whose rules differ from a retail bank's.

A good accountant shrinks your taxable income. That's the same number a lender reads on a return. So smart tax planning can make you look like you earn less than you do, and that isn't your fault.

I'm a broker. I shop one file across a network of wholesale lenders instead of working under one bank's rules. Different lenders want different deals, and a bank-statement lender looks at your business deposits rather than your returns.

A bank-statement loan is a separate loan from a Fannie Mae loan. How many months of statements you need is each lender's own rule, so ask before you start downloading PDFs. The full walk-through is in bank-statement loans for self-employed buyers.

You're done here when you know whether this loan is on the table and you have the statements that lender asked for.

Step 4: Sign the IRS transcript authorization

Each borrower whose income counts on a Fannie Mae conventional loan generally signs IRS Form 4506-C, or an alternative like Form 8821. It lets the lender ask the IRS for your tax transcripts if it chooses to.

The form is your consent. The IRS only gives tax records to a third party, like a lender, when you've agreed to it.

You sign it at or before closing. The form's own instructions say it can cover up to four years and stays valid for 120 days after you sign, so a form signed too early can expire before you close.

You might not need it at all. When Fannie Mae's Desktop Underwriter (DU), its automated loan review system, validates all of your income, no signed 4506-C is required. Fannie Mae also says a lender may get transcripts, not that it must. Whether a lender checks again later is covered in do lenders re-check self-employed income before closing.

This step is done when the signed form is with your lender, or your lender tells you DU didn't need it.

Step 5: Explain gaps and dips in a short letter

Write a short letter that explains each gap or dip in your income. In my experience, a lender reads a steady line of work more easily when you explain the breaks up front.

I worked with a travel nurse whom another lender had turned down. That lender said the breaks between her assignments made her income too unstable. She'd been a nurse for years, on thirteen-week contracts with short gaps between them.

We gathered her contracts, her pay stubs and two years of tax returns to show the same work and a steady history. Then we explained each gap in a short letter. The lender counted her contract income, and she bought a small home in Hillcrest.

I'd handle a slow year in your business the same way. Say what happened, when it happened, and what the business looks like now. A few plain sentences beat a long essay.

A letter explains. It doesn't replace any document the lender's rules require. If a divorce is part of your story, what a lender reads when you're divorced and self-employed walks through that file.

You're done when every gap or dip in the years the lender reads has a sentence behind it.

Step 6: Apply and check your Loan Estimate

Once a lender has your application, it must give you a Loan Estimate within three business days. That's where you check the rate, the annual percentage rate (APR) and what the payment actually looks like.

A Loan Estimate is a standard form that lays out the loan's terms and costs. The APR is the yearly cost of the loan with certain fees folded in, so it's usually higher than the rate.

That deadline covers closed-end consumer mortgages secured by real property, like a loan to buy a home. It doesn't cover home equity lines of credit or reverse mortgages.

An example shows how the pieces line up on a Loan Estimate. Its discount-point figure comes from the Consumer Financial Protection Bureau (CFPB).

Example: a $400,000 30-year fixed loan at 6.09% (6.161% APR) with 20% down ($100,000) on a $500,000 home has 360 monthly payments of $2,421.40 in principal and interest. The APR assumes 0.75 discount points ($3,000, the median paid by 2023 home buyers who paid points, according to the CFPB) and no other lender fees. Taxes and insurance are not included, so the actual payment will be higher. The rate is the market average for February 12, 2026 from Freddie Mac Primary Mortgage Market Survey; yours depends on your credit, loan and property.

Your numbers will be different. Compare the rate, the APR and the fees side by side on each estimate you get. For how income and price feed into it, see what sets your payment in San Diego.

You're finished with this step once a Loan Estimate is in hand and its numbers match what you expected.

Common mistakes at tax time

I'd steer you away from filing the new return before you and your loan officer pick the year the lender reads. Once it's filed, the lender can see it, and you can't take it back.

Signing Form 4506-C months ahead is another. Fannie Mae's Selling Guide says it's valid for 120 days after signing. An early signature can expire before closing, and then you'd sign a new one.

Some buyers wait to apply until they have two full years in business. Fannie Mae has exceptions for shorter histories, so I'd ask whether one fits before putting your plans on hold.

Another is treating one bank's no as the market's answer. A bank can only offer its own rulebook. As a broker, I can shop the same file to other lenders, and their rules may read it differently.

How I know this

I've spent 21 years at this. Because I'm a broker, I see one tax return read differently by different lenders. At Rate Rebel (NMLS #282828) in San Diego, I lend in California and close bank-statement and asset-based loans that retail banks turn away. The travel nurse's file showed me what an honest letter does. The rules here come from Fannie Mae's Selling Guide, the IRS and the CFPB.

What comes next once your papers are together

Before you file, run your numbers and have a loan officer check which year's return makes the stronger file. The free calculators on my site estimate what you could borrow and a realistic payment in a few minutes, with no credit pull.

A calculator gives an estimate. It isn't an approval or a rate; only underwriting decides that.

After you apply, compare the Loan Estimate with what the calculator showed you.

My rule is simple. If your latest year shows your income well and you have two years of history, a Fannie Mae loan with signed returns or transcripts fits. If write-offs make your returns look thin, ask about a bank-statement loan instead, and settle the year with your loan officer before you file and the tax side with your CPA. You can send me your question and your numbers right here on this page, and I'll tell you which path I'd look at first.

Questions self-employed buyers ask at tax time

I checked these rules against Fannie Mae's Selling Guide, IRS Publication 936 (2025), the IRS income verification service and the CFPB's Loan Estimate rule as of February 12, 2026. Guidelines change, so ask your lender which version it's working from.