Purchasing a new home is a huge positive step in life, so it’s only natural that you’d be looking to the future while going through the process. Prospective homeowners need to be aware, however, that their pasts could come back to bite them if they’re not careful about handling their information. Documents that fulfill important roles during the mortgage application dance, like the increasingly familiar Form 4506-T, also have the potential to be abused.
The Risks of Tax Return Transcripts
Lenders commonly employ IRS forms to find out about your tax history. Form 4506-T, or Request for Transcript of Tax Return, lets taxpayers and authorized third parties, such as lenders, access information concerning prior returns. Although the data revealed is abridged, it can still expose critical personal details.
One of the major issues at hand is that institutions like Fannie Mae have told lenders they should request multiple copies of relevant return transcripts. By asking you to fill out a 4506-T when you make your initial application as well as when you complete the process, the idea is to reduce fraud by applicants and make lending more stringent. Unfortunately, this strategy also places honest loan seekers at heightened risk.
More tax return transcripts mean more chances that your private financial data will be seen by people you don’t approve of. In addition, lenders have been known to go against the IRS’ guidelines by advising applicants to authorize undated forms or skip the section that asks which transcript years they’re requesting. If you were to follow such instructions, you’d essentially give investors the chance to hold onto your partially-completed forms and subsequently request transcripts you didn’t intend for them to see.
So how do you stop sneaky investors from taking advantage of your obligation to share your financial data? In short, follow the IRS’ instructions on your form 4506-T. When you’re filling out the area that specifies which return years you’d like the IRS to deliver, be certain to complete all fields, and mark out any spaces you intend to leave blank. You should also keep a copy of the form you submit.
Finally, always include a date next to your signature. This seemingly minor measure provides vital protection against future misuses because the IRS is only allowed to send return transcripts for 4506-T forms it receives within 60 days of their signing.