Tax Season Without Confusion: What Homebuyers Should (and Shouldn’t) Do Right Now
10 Common Tax-Season Mistakes That Can Impact Mortgage Approval (and How to Avoid Them)
Chris Hazen, Chief Revenue Officer, FinLocker
Tax Refund Season: Help Your Buyers Make Smart Moves (and Avoid Red Flags)
Chris Hazen, Chief Revenue Officer, FinLocker
How To Help Self-Employed Borrowers File Taxes Without Delaying Their Home Purchase
Chris Hazen, Chief Revenue Officer, FinLocker
View all previous articles
10 Common Tax-Season Mistakes That Can Impact Mortgage Approval (and How to Avoid Them)
Chris Hazen, Chief Revenue Officer, FinLocker
Tax season can make or break a mortgage application. As loan officers, helping your clients navigate these common pitfalls can mean the difference between approval and denial.
Tax season is when buyers make well-intentioned financial decisions that can create underwriting headaches. The issue isn’t that they’re doing something wrong, it’s doing something that changes the story your documentation needs to tell.
What loan officers should watch for (and how to fix)
1. Over-Aggressive Business Deductions
The Mistake: Self-employed borrowers maximize deductions to reduce tax liability, inadvertently lowering their qualifying income.
The Fix: Advise clients to balance tax savings with mortgage goals. If they’re planning to buy within 12-24 months, consider limiting deductions like home office, vehicle expenses, and meals to maintain higher net income on tax returns.
2. Writing Off Unreimbursed Employee Expenses
The Mistake: W-2 employees deduct work expenses, reducing their adjusted gross income.
The Fix: These deductions directly lower qualifying income. Clients should postpone non-essential write-offs if they’re mortgage shopping.
3. Maximizing Retirement Contributions
The Mistake: While financially smart, maxing out 401(k) or IRA contributions reduces take-home pay and debt-to-income ratios.
The Fix: Time these contributions strategically. If approval is tight, consider temporarily reducing contributions until after closing.
4. Filing Extensions Without Communication
The Mistake: Filing a tax extension when lenders need current returns for approval.
The Fix: Lenders typically require the most recent two years of tax returns. Extensions can delay closing by months. If an extension is necessary, communicate this early and provide all supporting documentation.
5. Showing Outstanding Tax Debt
The Mistake: Owing the IRS without a payment plan signals financial instability to underwriters.
The Fix: Set up an approved IRS payment plan before applying. Most lenders accept payment plans if they’re current and documented.
6. Inconsistent Income Documentation
The Mistake: Income reported on loan applications doesn’t match tax returns, raising red flags.
The Fix: Ensure pay stubs, bank statements, and tax returns tell the same story. Address any discrepancies upfront with explanations.
7. Changing jobs or pay structure
The Mistake: A move from W-2 to 1099, adding commission, or switching industries can change how income is calculated.
The Fix: “Before you change jobs, call me first” is the advice that should be given to every prospect.
8. Large Charitable Deductions
The Mistake: Significant charitable contributions reduce qualifying income for self-employed borrowers.
The Fix: While admirable, borrowers should time substantial donations strategically—preferably after mortgage approval.
9. Large, unexplained bank deposits
The Mistake: Tax refunds, gifts, and transfers are common in Q1 but if the source isn’t clearly documented, it can slow approvals.
The Fix: Teach buyers to move money in a traceable way (bank-to-bank) and keep a clean paper trail.
10. Running up credit cards “for points”
The Mistake: Even if buyers plan to pay it off later, reported balances can spike utilization and lower scores temporarily.
The Fix: Tell buyers: “Let the statement cut low, not high.”
Borrower-ready language you can use
Until you close, treat your finances like they’re in a ‘do not disturb’ zone. Even good moves, like a new credit card for points, a large tax refund, a 0% transfer balance or moving money from a retirement account to personal savings, can create delays if we can’t document them cleanly.
The Bottom Line
Tax strategy and mortgage qualification often conflict. Start the conversation early with clients planning to purchase. Review their previous returns, discuss upcoming deductions, and create a timeline that protects both their tax position and homeownership dreams. A little planning during tax season can save months of frustration later.
Pro Tip: Expand your network to include tax professionals who understand mortgage lending. The right CPA can structure returns to support both tax efficiency and mortgage approval.
Tax Refund Season: Help Your Buyers Make Smart Moves (and Avoid Red Flags)
Chris Hazen, Chief Revenue Officer, FinLocker
Tax refund season is prime time for homebuyers to boost their mortgage readiness—but only if they handle that money correctly. As their trusted advisor, you can guide clients toward strategic choices that strengthen their application while steering them away from moves that could derail underwriting.
The Smart Plays
Boost the Down Payment
A larger down payment means better loan terms, lower monthly payments, and potentially avoiding PMI. Remind buyers that putting their refund toward a down payment is a straightforward way to improve their buying power and monthly budget.
Build Cash Reserves
Underwriters love to see reserves to cover several months of mortgage payments and unexpected increases in property taxes or home insurance premiums. If your buyer’s down payment is solid but reserves are thin, suggest they park that refund in savings. It demonstrates financial stability and can make the difference in a competitive offer situation.
Pay Down Debt
Lowering credit card balances or paying off small debts directly improves debt-to-income ratios. This is especially powerful for buyers who are borderline on qualifying. A strategic paydown could be the key to getting them approved.
The Red Flags to Avoid
Here’s where things get tricky. Even with the best intentions, buyers can create underwriting nightmares if they don’t handle their refund properly.
Cash Deposits
If your buyer cashes their refund check and then deposits cash into their account, you’ve got a problem. Underwriters can’t verify cash sources, which creates a paper trail issue. Coach clients to deposit refund checks directly, and never convert to cash first.
Unexplained Large Transfers
Moving money between accounts without clear documentation raises red flags. If a buyer deposits their refund and then transfers chunks to other accounts, underwriters will ask questions. Every dollar needs a clean trail.
Using refund money to open new credit
It’s attempting to buy furniture for their future home or use the refund as a deposit on a car. However, refund-funded “new furniture” or “new car” purchases can reduce buying power. Remind all buyers to wait until after closing before making any major or out-of-the-ordinary purchases.
Your Role as Advisor
Have this conversation early. A simple “when you get your refund, let’s talk before you do anything with it” can save everyone headaches later.
Position yourself as the guide who helps them maximize this opportunity while keeping their approval on track. That’s the kind of proactive support that builds trust and referrals.
Empower Your Buyers with Real-Time Tracking
For loan officers using FinLocker, there’s an even better way to help clients maximize their tax refund impact. Check that your buyers have connected their bank accounts in their FinLocker app so they can see exactly when their refund hits. Once deposited, they can track how strategic debt paydowns immediately improve their debt-to-income ratio and watch their credit scores respond. The Homeownership Snapshot shows them exactly how close they are to their down payment and reserve goals, turning that refund from a one-time windfall into visible momentum toward homeownership. When buyers can see their progress in black and white, they stay motivated and engaged, and you stay top of mind as the advisor who gave them the tools to succeed. It’s proactive guidance that works even when you’re not in the room.
Consumer Email
Subject Line: Smart Ways to Use Your Tax Refund Toward Homeownership
Email Body:
Hi [First Name],
Tax refund season is here, and if you’re planning to buy a home this year, how you handle that money matters more than you might think.
A tax refund can be a game-changer for your home purchase, but only if you use it strategically and avoid a few common mistakes that can create problems during the mortgage approval process.
Smart Moves That Strengthen Your Application
Boost Your Down Payment
Putting your refund toward your down payment can lower your monthly mortgage payment, help you avoid private mortgage insurance, and make your offer more competitive.
Build Your Cash Reserves
Lenders like to see that you have money set aside beyond your down payment, which is typically 2-6 months of mortgage payments in savings. Your refund is perfect for this.
Pay Down Debt
Paying off credit cards or small loans improves your debt-to-income ratio, which can help you qualify for a better loan or even qualify when you otherwise might not.
Avoid These Red Flags
Even with good intentions, some moves can create underwriting problems:
❌ Don’t cash your refund check – Deposit it directly into your bank account. Cash deposits can’t be properly documented and may delay your approval.
❌ Don’t move money around without telling me first – Transferring funds between accounts or to other people creates questions that are hard to answer during underwriting.
❌ Don’t “lend” your refund to anyone – Money that leaves your account and comes back later looks suspicious, even if it’s completely legitimate.
Let’s Make a Plan
Before you do anything with your refund, let’s talk for 10 minutes. I can help you make the most strategic choice for your specific situation and keep your approval on track.
[If LO uses FinLocker, add this paragraph:]
If you’re using my FinLocker app, you can connect your bank account to track when your refund deposits and see how smart moves, like paying down debt, improve your approval odds. You’ll see your progress toward your down payment goal and your debt-to-income ratio improve right in the app.
Reply to this email or call me at [PHONE] when your refund hits. This is exactly the kind of guidance that makes the difference between a smooth closing and unnecessary delays.
Looking forward to helping you move closer to homeownership!
[Loan Officer Name]
[Contact Information]
How To Help Self-Employed Borrowers File Taxes Without Delaying Their Home Purchase
Chris Hazen, Chief Revenue Officer, FinLocker
Tax season presents a unique challenge for loan officers working with self-employed and 1099 borrowers. While W-2 employees simply report their income, self-employed clients must balance legitimate tax deductions with maintaining sufficient qualifying income for mortgage approval. Here’s how to guide them through this critical decision.
The Self-Employment Income Dilemma
Lenders typically average two years of tax returns to calculate qualifying income for self-employed borrowers. Every business deduction that reduces taxable income also reduces the income available for mortgage qualification. A borrower who writes off $30,000 in expenses might save $7,500 in taxes, but could lose $150,000 in purchasing power if that deduction drops their debt-to-income ratio below qualification thresholds.
Timing Strategies for Your Clients
Before Filing: If your self-employed client plans to purchase within the next 12-18 months, have a conversation now, before they file their current tax return. Review their planned deductions with their CPA and run qualification scenarios. Sometimes accepting a slightly higher tax bill this year preserves their purchasing power and home buying capability.
Ask them to provide you with:
1) Two years of personal and business returns (as applicable)
Underwriters use returns to calculate income, and the details matter.
2) Year-to-date P&L and balance sheet
These help confirm the business is still performing similarly to what returns show.
3) Business bank statements (sometimes required)
They can support the health of the business and cash flow patterns.
4) CPA letter / verification (when appropriate)
Helps validate business existence and sometimes clarify structure.
After Filing: If they’ve already filed and their income decreased significantly, you have options. Bank statement loan programs allow qualification based on deposits rather than tax returns, though rates may be higher. Alternatively, waiting until next tax season to file with more conservative deductions creates a better two-year average.
Mid-Year Planning: For borrowers currently shopping, pull tax transcripts immediately to assess their actual qualifying income. If their most recent return shows reduced income, determine whether waiting until after they file next year’s return (with higher income) would improve their position.
Proactive Loan Officer Actions
Reach out to self-employed clients immediately if they haven’t yet filed, as there’s still time to strategize before the April deadline. Partner with CPAs who understand mortgage lending so they can structure deductions to balance tax savings with homeownership goals.
Create a simple questionnaire for self-employed prospects asking about their business structure, typical annual deductions, and planned major write-offs. This helps you identify potential qualification issues early.
60-second Social Media Script to attract self-employed buyers on social media
Hey, quick heads up if you’re self-employed and thinking about buying a home in the next year or two.
Before you file your taxes this spring, let’s have a five-minute conversation. I’m not going to tell you how to do your taxes—that’s your CPA’s job. But here’s what a lot of people don’t realize:
Every business deduction that lowers your tax bill also lowers the income a lender can use to qualify you for a mortgage. So that $30,000 in write-offs that saves you $7,500 in taxes? It could cost you $150,000 in buying power.
I’ve seen it happen too many times. Someone files in March, then calls me in June ready to buy a house, and we discover their qualifying income just dropped by half.
The good news? If we talk before you file, we can run the numbers and see exactly how your tax strategy will impact your mortgage approval. Then you and your CPA can make an informed decision about what’s best for your situation.
No obligation, no pressure. Just a quick conversation that could save your home purchase.
Send me a message and let’s look at your numbers together.
The Bottom Line
Self-employed borrowers need specialized guidance that traditional W-2 employees don’t require. By educating clients about the impact of tax strategies on mortgage qualification—ideally months before they file—you help them make informed decisions that support both their business and homeownership objectives. The borrower who understands this tradeoff before filing returns avoids the frustration of learning their purchasing power decreased after it’s too late to adjust.