Because income tax documents are generally required by lenders to confirm details regarding your financial standing, not filing income taxes can result in significant issues in the process of obtaining a mortgage and buying a home.
For the self-employed, lenders generally look at the Notice of Assessment in order to verify levels of income, usually for the past two years. Along with job history and credit rating, income is a major factor that lending organization consider when determining a person’s eligibility for a mortgage. Those who are self-employed a required to report either their taxable income, as indicated on line 150 of you Notice of Assessment, or else provide records as to gross income to demonstrate qualifying income figures in the case of a low taxable income.
Not filing income taxes creates issues for those who are self-employed because the Notice of Assessment is the documentation of having filed taxes. Thus, reporting income is difficult without filing taxes.
In addition, Notices of Assessment that include notifications of outstanding taxes owed to the government can cause issues with the mortgage. Lenders check the Notice of Assessment for any outstanding taxes because, in the case of significant taxes owed, tax arrears can be placed on the title of the home, which would take precedence over the mortgage financing if the property is sold. If that were to take place, the lender would wind up taking losses, so outstanding taxes can result in greater difficulty securing a mortgage.
Outside of the implications on home purchases, you also face significant penalties if the government becomes aware of your lack of income tax filing. The charge is five percent above what is owed plus one percent per month the tax filing is late, all the way up to a year. Beyond that (and for people who have filed late multiple times) the penalties can be more significant.
There are, however, options for people looking to get back on track with income tax filing. The Voluntary Disclosures Program allows taxpayers to provide accurate tax filings for past periods without the risk of penalty.
Those without tax returns do still have some opportunity to obtain a mortgage, although the conditions are typically less favorable. It’s possible to report stated income through invoices, client letters, and business licenses. Down payments are typically in the 15 to 20 percent range, with higher down payments required on rental properties.
