W2s, or Wage and Tax Statements, are forms that employers must provide to their employees and the Internal Revenue Service (IRS) at the end of each tax year. They report the employee’s total income and taxes withheld for that year. Two years of W2s would refer to the W2s for the current tax year and the previous tax year. These forms are used to file taxes and claim deductions or credits.
Why do we need a W2 for a mortgage loan?
W2s are used as a way to verify an applicant’s income when applying for a mortgage loan. The lender needs to know the applicant’s income to determine their ability to repay the loan. The W2 form shows the applicant’s income for the previous tax year and the taxes that have been withheld from that income. The lender uses this information to ensure that the applicant has a steady income and to determine the applicant’s debt-to-income ratio, which is a measure of the applicant’s ability to repay the loan.
The lender also uses the information on the W2 to calculate the applicant’s income and to ensure that they meet the lender’s income requirements. Lenders typically have minimum income requirements that an applicant must meet in order to qualify for a mortgage loan.
Additionally, by providing W2 the lender can also check if the applicant has any outstanding taxes or debts that may affect their ability to repay the loan.
This is a supplementary post to: First-Time Homebuyer’s Guide to Mortgage Approval