Before one can even consider purchasing a home and applying for a mortgage, most lenders require that the business must have been operating for a minimum of two years. The tax returns are used as a starting point for the lender to verify both the income and the profitability of the business. This is a base figure that gives the lender a feel for the individual's income. These are used to verify that the owner of the business is reporting the amount of income received from the business. They also serve as a system of checks and balances throughout the entire verification process.
Some lenders use the information to add certain expenses back into the business owner's income.
This works to the advantage of business owners if they are considered to be a borderline candidate. Most business owners have a higher amount of debt than the average home buyer, mainly because a lot of the business expenses and debts are often secured by the business owner personally. These documents are used to determine the credit-worthiness of the potential borrower and the borrower's business. The credit reports would document late payments, closed accounts, etc. This is used to support the figures included on the tax returns and as an update for information that is too current for the most recent return.