Dallas, TX · Member since 2018 · 18 posts · 1 vote
I have never purchased a home before so I am wondering if the conventional mortgage preapproval process is similar to an IRS audit.
For the preapproval, what if bank statements and tax returns don't match? Do they check for accuracy when you send them your tax returns and bank statements? Will they ask you to classify every deposit and withdrawal found in your bank statements? What if you accidentally under reported any sources of income or accidentally over-calculated any expenses on your tax returns? What if you sometimes deposit money that you get as gifts from family?
I am just wondering if the preapproval process is basically like an IRS audit where they check every tiny detail. If it is I am sure that many people will have tax returns and bank statements that don't match perfectly right?
Also, let's say you have $1,000,000 in the bank right now (that you saved up over many years) but make $100k a year. Will they want to know exactly where the $1,000,000 came from or what?
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Most people are honest and don't commit tax fraud...and banks don't audit your tax returns. Your credit score, DTI, and proof of liquidity for the down payment are the primary qualifiers for residential financing and lenders will calculate them using the credit reports they pull, the application you complete, and the tax returns and bank statements that you provide them. If you fraudulently under-reported income or over-reported expenses on your tax return, your DTI could be negatively impacted.
Most people are honest and don't commit tax fraud...and banks don't audit your tax returns. Your credit score, DTI, and proof of liquidity for the down payment are the primary qualifiers for residential financing and lenders will calculate them using the credit reports they pull, the application you complete, and the tax returns and bank statements that you provide them. If you fraudulently under-reported income or over-reported expenses on your tax return, your DTI could be negatively impacted.
So do the banks add up all of your deposits/income and expenses from all of your bank statements? What if you have multiple bank accounts? Do they want to know where all deposits/income and expenses come from and how closely do they analyze them?
I am just saying that an average young sole proprietor may not be good with accounting and doing their own taxes and if they have they cannot afford to hire a tax professional and have multiple bank accounts they may not add up everything correctly or put things 100% correctly into tax software. I am wondering if banks will care about this and with any cash deposits.
These are things that I think the IRS would be anal retentive about and want you to categorize if they audited someone. Do banks do the same during the mortgage preapproval and loan process?