If you are applying for a mortgage and the lender calls you with the news that you must file your most recent tax return before you can close, then you must file it. Even though this is incredibly frustrating and may result in being homeless while the IRS processes your tax return, it must be done and most loan officers will tell you this is a major cause of delayed closings. It is crucial that you E-file if you need the loan quickly. Mailing in your returns can take up to 8 weeks. E-filing takes a matter of days. Your lender will be sending a form 4506T to the IRS to verify the income you are submitting to them matches the records with the IRS. 

Let's take a look at the most common reasons filing your tax return will be required: 

You need the income to qualify

Lenders need a two year average of income and if they need your most recent return filed, it is likely because the years prior to that had lower income which will bring down your average

You have un-reimbursed business expenses

This could leave open the possibility that there is more to the story regarding your income than your simple W-2 forms.

You have a business that is either a sole-proprietor or you have corporate/partnership income

If you are making $100,00 per year at your job but you also own a business that loses money every year, the underwriter MUST document that to prove you are not losing money every month as a business owner. This is used to calculate your income average whether that is good or bad is a matter of how well your business did in the prior year.

You have rental property

Too often what is on the lease is at odds with what is reported on the tax return so the underwriters have 'tightened up' on rental income by requiring the actual net income used on your Schedule E.

 So if you are thinking about buying a home and you file a tax return other than 1040EZ, then have your taxes filed a few weeks before your application. For more information about E-filing, visit the IRS at  http://www.irs.gov/Filing. One final tip: When filing tax and applying for a mortgage, keep your name straight by using your name exactly as it appears on your social security card. Make sure you do this when you file taxes, apply for your mortgage, open your bank account, and on all of your pay documents from your employer. Before you apply for a mortgage would be a great time to make the corrections. Otherwise, you can expect a lot of explanations to the lender, court papers, etc.  

This depends on whether or not the property is located in a flood zone as defined by FEMA. During the loan process the lender must insure that your property is not located in a 'Special Flood Hazard Area' or SHFA.

The VA guidelines are clear on this  - You need flood insurance if you are in a flood zone

“The lender is responsible for ensuring that flood insurance is obtained and maintained on any building or personal property that secures a VA loan if the property is located in a special flood hazard area (SFHA), as identified by the Federal Emergency Management Agency (FEMA).”

So how does a lender determine this? By ordering a 'flood cert' from any number of vendors with access to FEMA maps. Your lender will do this for you. For a small charge of around $20 (paid when you close), the lender can determine the danger of a home flooding almost anywhere in the country and this information is used to determine the insurance premium.

You can obtain flood insurance through the National Flood Insurance Program (https://www.floodsmart.gov/floodsmart/pages/choose_your_policy/agent_locator.jsp) by visiting their site, entering your zip code, and selecting an agent. They will send you a quote within minutes and you will be covered!

Flood insurance is required to protect you and the lender.

Bill Ackman of Pershing Square Capital Management LP is suing the Federal Government because he feels cheated by the treasury. Cry us a river Bill. During the financial crisis of 2008, Fannie Mae and other agencies were declared insolvent and required a government bailout of $185 Billion from the taxpayer. The terms of the emergency bailout were hammered out and Fannie Mae and other agencies in exchange for being saved were to pay a dividend to the Treasury of 10% for the $185 billion infusion.  Fannie Mae has been able to pay this dividend and has paid in excess of $185 Billion to date.  Bill Ackman thinks Fannie Mae has paid enough and insists that the dividend is unlawful and the $185 billion should be treated as an interest-free loan rather than a dividend-for-capital infusion. By getting a court to classify the government investment as an interest-free loan, Mr. Ackerman hopes to claim that the legacy shareholders, rather than the government are entitled to the massive profits. The problem with this position is that the legacy shareholders voted for the legacy management that resulted in the insolvency of Fannie Mae. We all know that under a traditional public business model the shareholders of an insolvent company with debt are entitled to nothing. This is finance 101 and Mr. Ackerman knows this.  Even he can see the irony of using our political system to unlock the vault of Fannie Mae again. But this time, rather than bribing congress, he is taking to the courts. And this is the problem with Fannie Mae, on some level everyone feels entitled to a shot at these massive profits and they will turn to all levels of their crony government to help themselves be declared the winner.        

Bill Ackman's case is perched on thin ice because it doesn't respect the basic rules of American business; In the case of insolvency, equity is always subordinate to debt. And new capital and equity is senior to old equity that was recklessly lost. This is how to incentivize good management. Had Bill, or the shareholders, or the debt holders showed up in 2008 with their own infusion of $185 billion to save the GSE's then it is reasonably certain he would have been given the same deal. Moreover, the time for Bill to get involved was prior to 2008. Was he suing the radical management practices of Fannie Mae in the 2000's when they were being abused by his wall street cronies? Was he protesting the egregious CEO bonuses being paid?  He wasn't. Nor was Bill Ackman there in 2008 with the $185 Billion needed to save our home loan banks.  Neither were any of the shareholders or the bondholders. Nobody was there for Fannie Mae except the taxpayer. So the government stepped in and took the massive financial and political risk. And now the taxpayers are entitled to the dividend.  That was the deal. Period. Mr. Ackerman was not suing the treasury back in 2008 for a chance to counter offer the $185 billion at 10% dividend with his own money. He waited to see what would happen and when the coast was clear he furiously began the hunt for any flimsy legal issue he could raise.     

The biggest issue that the business community should take note of is that the government is running Fannie Mae a lot better than private sector did. I have no doubt that the efficiencies of the private sector could help Fannie in some ways, but any gain in efficiency would be lost by the inevitable corruption that the private sector will bring to the agency. The temptation for lenders to make huge fees, game the system and dump all their bad loans on Fannie Mae is just too great to ever let these self-dealing jackals have it back. The shareholder-owners had their chance to run Fannie Mae and they failed miserably so they lost the company. And the government saved it. 

As an originator, I never want another mortgage crisis.  It was bad enough to watch my business, retirement and savings accounts dwindle while the housing industry burned to the ground. It was a life-changing experience to see the effects of corruption on some of my clients who lost their homes. Worse, there were the clients who did everything right and couldn't sell their home, build a new home, or get a loan at all because the market was seized. And the one thing I'm never going to do is listen to something that I know is a lie without calling it out. Ackman is just wrong. The private sector will not run it better. The shareholders already lost their rights to the company, the government was clear about the terms of their involvement and they are not entitled to any of the future profit of Fannie Mae. He was given notice of the terms of the agreement so any hope of Ackman getting to those profits is a pipedream. And for that reason I hope he swiftly loses his case and Fannie Mae stays in the status quo. Our National mortgage bank is not broken anymore thanks to our government intervention which has been in no uncertain terms, terrific.