Self-employed person in Nevada preparing mortgage documents.

How to Get a Mortgage on a Tax Extension in Nevada

Q: Why do mortgage lenders require tax returns from self-employed applicants?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: What specific documents are needed for a mortgage application if I've filed a tax extension?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: What key components must be included in a Profit and Loss (P&L) statement for a lender?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: Why do lenders also need my business bank statements when I provide a P&L?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: Will filing a tax extension lead to a higher mortgage interest rate?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: What is the standard business history requirement for self-employed mortgage applicants?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: Can I still get a mortgage if my income this year is lower than last year?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

Specialized In Jumbo Loans, Investor Loans, DSCR Loans, Non-QM Financing, Commercial Mortgages, and Tax-Informed Lending Strategies

Published By

David Ghazaryan

Owner / Broker / Banker

Contact Me At

(702) 766-3744

NMLS 1486726

Let's Connect

TL;DR

For self-employed borrowers, securing a mortgage requires clear proof of income. This guide covers the essential documentation needed, especially when you've filed a tax extension.

Income Verification: Lenders primarily use tax returns to confirm that your income is stable, predictable, and likely to continue in the future.
Tax Extension Alternatives: If you're on a tax extension, you must provide alternative documents, most importantly a detailed and current profit and loss (P&L) statement.
Preparation is Key: Understanding how to properly prepare and present these documents is crucial for self-employed individuals in Nevada to achieve a smooth mortgage approval.

Why Lenders Need Recent Tax Returns

Mortgage lenders are in the business of managing risk. Before they approve a significant loan, they must be confident you can repay it. For self-employed individuals, tax returns are the gold standard for income verification. They provide a clear, third-party-verified history of your earnings over at least two years.

Underwriters use this information to calculate your qualifying income. They analyze your business revenue, subtract expenses, and arrive at an average monthly income figure. This process demonstrates two critical factors:

Stability: Consistent or increasing income over several years shows that your business is healthy and not just having a temporary good spell.
Continuity: Lenders need assurance that the income used to qualify you for the loan is likely to continue for at least the next three years. A history of profitability is the best indicator of future success.

Without your most recent tax return, this picture is incomplete. A tax extension creates a gap in this documentation, which is why lenders require specific alternative documents to fill it.

Required Documents for a Mortgage with a Tax Extension

Filing an extension doesn't automatically disqualify you, but it does mean you need to provide more paperwork. An underwriter needs to see what your income looks like for the period covered by the extension.

Here is the exact documentation you will typically need to provide:

Proof of Extension Filing: You must show a copy of IRS Form 4868, 'Application for Automatic Extension of Time To File U.S. Individual Income Tax Return'. This proves your filing is delayed legally.
Previous One to Two Years' Tax Returns: You will still need to provide your most recently filed tax returns, typically for the two years prior to the extension year.
Year-to-Date (YTD) Profit and Loss (P&L) Statement: This is the most critical document. It must be detailed, accurate, and cover the period from January 1st of the current year up to the most recent month-end. It cannot be older than 60 days. (The data, information, or policy mentioned here may vary over time.)
Business Bank Statements: Most lenders will require the most recent two to three months of business bank statements to verify the revenue and expenses listed on your P&L.
A Letter from Your CPA (Sometimes): Some lenders may request a letter from your tax professional confirming the accuracy of your prepared P&L statement.

Gathering financial documents for a mortgage application

Creating a Lender-Approved Profit and Loss Statement in Reno

Your YTD Profit and Loss statement must be clear, organized, and credible. It isn’t just a list of numbers; it’s the primary story of your business's current financial health. For homebuyers in competitive markets like Reno, a professional and accurate P&L can make the difference between a quick approval and a denial.

Key Components of a P&L Statement

An acceptable P&L must itemize your business finances. It should be broken down month-by-month and include a year-to-date total column.

Gross Revenue/Sales: All income your business has generated before any expenses are deducted.
Itemized Business Expenses: A detailed breakdown of all costs associated with running your business. This includes things like advertising, office supplies, utilities, professional fees, and subcontractor costs. Do not lump them together.
Net Income: The final number after all expenses are subtracted from your gross revenue. This is the figure the lender uses to determine your qualifying income.
Business Information: The P&L should clearly state your business name, your name, and the exact period it covers.
Your Signature: You must sign and date the P&L, attesting to its accuracy.

Example P&L Breakdown

Imagine you are a self-employed consultant in Reno applying for a mortgage in July. Your P&L would cover January 1st through June 30th.

Gross Monthly Income (Jan-June): $8,000, $8,500, $7,800, $9,000, $8,200, $8,800. YTD Total: $50,300
Monthly Expenses (Jan-June):
- Software Subscriptions: $150/month
- Marketing: $500/month
- Business Insurance: $100/month
- Office Supplies: $50/month
- Total Monthly Expenses: $800
YTD Total Expenses: $800 x 6 = $4,800
YTD Net Income: $50,300 (Gross) - $4,800 (Expenses) = $45,500
Average Monthly Qualifying Income: $45,500 / 6 months = $7,583.33

This detailed breakdown allows an underwriter to clearly see your financial performance and calculate the income they can use for your application.

Do Lenders Need Business Bank Statements?

Yes, almost always. Business bank statements are the verification tool for your P&L statement. The underwriter will cross-reference the deposits on your bank statements with the revenue you claim on your P&L. They are looking for consistency.

If your P&L shows $8,000 in revenue for March, the underwriter expects to see corresponding deposits of roughly that amount in your March bank statement. They also use the statements to look for:

Commingled Funds: Large, unexplained transfers from personal accounts can be a red flag.
Unlisted Debts: Regular payments to another lender could indicate a business loan you didn't disclose.
Cash Flow Issues: Frequent overdrafts or low average balances might suggest business instability.

Keeping your business and personal finances separate is crucial for a smooth mortgage process.

Will a Tax Extension Affect My Interest Rate?

No, being on a tax extension itself does not directly result in a higher interest rate. The rate you are offered is based on your credit score, loan-to-value ratio, debt-to-income ratio, and overall financial risk profile. The extension is a documentation issue, not a risk-rating factor.

However, an improperly prepared P&L or financials that show a significant decline in income could indirectly impact your approval or the loan terms offered. The key is to provide clean, verifiable documentation that proves your income is stable, regardless of your tax filing status.

Self-employed individual preparing a profit and loss statement

Business History Requirements for Underwriters in Carson City

Whether you are buying in Carson City or Reno, lenders need to see a track record of success. The standard requirement for self-employed borrowers is a two-year history of running your business. This history must be documented through tax returns for the two most recently filed years.

If you have been self-employed for less than two years but more than one, you may still qualify, but the requirements are stricter. You will typically need:

At least 12 months of business tax returns.
A strong history in the same field of work prior to becoming self-employed.
Excellent credit and significant assets or reserves.

Lenders in markets like Carson City want to see that your business is not a brand-new, unproven venture. A consistent two-year history is the surest way to satisfy underwriting guidelines.

Qualifying with Lower Income Than the Previous Year

A slight decline in income is not an automatic deal-breaker, but it does require an explanation. If your YTD P&L shows that you are on track to earn less than you did in the previous taxed year, the underwriter will want to know why.

Be prepared to provide a Letter of Explanation (LOE) detailing the circumstances. Perhaps you took a month off for a family matter, invested heavily in new equipment that reduced short-term profit, or lost one client but have already replaced them.

As long as the decline isn't drastic (e.g., more than 20-25%) and you can provide a logical reason supported by recent bank statements showing a return to normal income levels, an underwriter may still approve the loan. (The data, information, or policy mentioned here may vary over time.) They will likely use a conservative income calculation, averaging the lower current income with your previous higher income, or they may only use the lower, more recent income figure. Honesty and clear documentation are your best tools in this situation. Filing a tax extension while applying for a mortgage in Nevada requires careful preparation. If you are self-employed, partnering with a mortgage professional who specializes in complex income documentation can streamline the process and ensure you present the strongest possible case to underwriters.

With your documents in order, you're well-equipped to move forward. Our team specializes in guiding self-employed homebuyers through this exact process. Ready to take the next step? Find out what you can qualify for and begin your journey to homeownership. Apply now.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.