This Article On Using IRS 4506T Form In Mortgage Loan Processing
Mortgage lenders require income verification with not just the employer and with requiring income tax returns, but will also need to verify the income and tax returns with the Internal Revenue Service to make sure that the income tax returns are valid.
- The way mortgage lenders verify federal income tax returns is by requesting income tax return transcripts from the IRS through the IRS 4506T form
- The IRS 4506T form will give borrowers authorization to have lenders request their income tax return transcripts
- The transcripts will match the numbers against the W2s, the 1099’s, and the income tax returns ( IRS FORM 1040 ) borrowers provided to the loan originator
- The IRS 4506T Form serves as a verification for mortgage underwriters to confirm that borrower’s income tax returns are indeed legitimate and recorded with the Internal Revenue Service
- All lenders today require confirmation of income tax returns
- Underwriters require validation income tax returns filed by every mortgage loan applicant via the IRS 4506T Form
In this article, we will discuss and cover Using IRS 4506T Form In Mortgage Loan Processing.
Mortgage And Real Estate Collapse Of 2008
Prior to the mortgage and real estate collapse, most mortgage lenders just required that mortgage loan applicants provide income tax returns and hardly verified it with the Internal Revenue Service.
- After the real estate, credit, and mortgage collapse of 2008, hundreds of thousands of foreclosures and bankruptcies skyrocketed in this country
- Thousands of mortgage companies shut down their doors
- The whole mortgage industry went through a major overhaul including the exclusion of no doc and stated product mortgage loans
- Sub-prime mortgage products, sub-prime mortgage companies, and sub-prime mortgage loan originators went extinct literally overnight
Part of new mortgage rules and regulations implemented by the government was a verification of income tax returns.
The Importance Of Qualified And Verified Income
This was accomplished through implementing that the IRS 4506T Form validating every mortgage loan applicant’s tax returns.
- Many loan applicants used to just have their accountants modify their income tax returns and not submit the amendment to the Internal Revenue Service
- This practice went into the mortgage fraud category
- Now it is a felony to amend income tax returns and claim it as legitimate income without submitting it to the IRS
Borrowers providing income tax returns to lender and claim the income, they can bank that it will be confirmed with the Internal Revenue Service.
Exemption To IRS 4506T Form Waiver
There are cases where lenders will waive the IRS 4506T Form.
In the event, if borrowers have non-taxable income such as the following:
- social security income
- pension income
- do not file income tax returns
If the above is the case, the mortgage lender will give the borrower an IRS 4506T Form waiver where all that is needed is to show is social security awards letter.
Also, if borrowers filed an income tax extension, a copy of the extension is sufficient in lieu of the IRS 4506T.
IRS 4506T Form: Income Tax Amendment
Some self-employed mortgage borrowers amend their income tax returns to show more income. They then retract their losses on their tax returns so they can qualify for a mortgage loan.
- Borrowers can do so and amend income tax returns and pay additional taxes and retract losses
- Just providing amended income tax returns and providing mortgage lender a copy of the canceled check to the Internal Revenue Service is not sufficient
- Of course, this will be required
- The mortgage lender will also need to get an IRS 4506T Form tax transcripts from the Internal Revenue Service
- Unfortunately, the Internal Revenue Service is extremely slow
- It can take weeks if not months for the Internal Revenue Service to have the amended income tax returns in their computer system
- I had a recent case where the borrower had amended income tax returns and provided me copies of the amended income tax returns as well as canceled checks to the Internal Revenue Service
- However, it took over three months for the IRS to have the amended income tax returns and payment in their system and we just got the IRS transcripts
Gustan Cho Associates Mortgage Group offers W2 Income Only Mortgages and Bank Statement Mortgage Loans for self-employed borrowers. Please contact us or text us for a faster response at 800-900-8569. Or email us at gcho@gustancho.com. Gustan Cho Associates is a national five-star mortgage company with no lender on government and conventional loans. Gustan Cho Associates is licensed in multiple states. The team at Gustan Cho Associates are experts on non-QM loans and bank statement loans for self-employed borrowers.
