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There is quite a difference.

Some lenders feel that they can quantify risk and a borrower's ability to repay through means other than tax returns. For example, if someone has a high credit score, it's not altogether unreasonable to assume that that person handles their financial affairs reasonably well. Whether they can continue to do so is another topic.

Or, some lenders might be more concerned with good collateral as opposed to someone's income. If you own a $300,000 house free and clear, you'll probably have little trouble finding someone to loan you $100,000 against it (or even as much as $200,000), even if you have no documentation whatsoever. You'll probably pay a little more, but you can get financing.

By my estimation, there are two types of people who have good incomes but low taxable income.

The first type is the person who runs his own business and deducts a lot of things that most salaried people can not deduct (meals, travel, cars, maybe a huge Sec. 179 deduction). This person has a lot of income, but through deductions (some of which may be questionable...who knows?), her taxable income is not high enough to meet a lender's formula.

The second type is the person who just doesn't run all of their income through their tax return. This is illegal, of course, but I am sure there are lenders who will look the other way in order to make the loan. The lender does not know that there is cheating going on, but it's probably likely. (Like when a cash-business owner has an $800,000 house free and clear, drives a $70,000 car, keeps $100,000 in his checking account, yet magically has only a $50,000 "income" on his tax return.)

I'm sure lenders will work with the second type, too, but you have to wonder how long it is until "The Tax Man Cometh." I wouldn't want to be associated with that borrower when things fall apart.

In any event, it's all about risk and reward, and some lenders are comfortable taking a risk without what others would call plain old prudent documentation.