If you haven’t applied for a mortgage since the housing and mortgage crisis occurred, you may be surprised when your lender mentions 4506-T form. Officially known as Form 4506-T, Request for Transcript of Tax Return, the form gained prominence when Fannie Mae requested all lenders to start using it in 2009. As the name of the form implies, it authorizes third parties–typically lenders–to obtain copies of applicants’ federal income tax returns directly from the IRS. Many lenders require two copies of the form, as they use it during the initial application process and at closing. Without it, your loan is unlikely to be approved.
How Long Does it Take?
Form 4506-T authorizes third parties to receive electronic copies of applicants’ federal tax returns. Because the form is sent electronically, you would think that it would take no time at all. However, the IRS typically needs two or three days to process the request and send the form.
During tax season, the IRS is especially busy. As a result, processing times for 4506-T forms may be longer. Expect the process to take up to five days in March and April.
When Form 4506-T is submitted to the IRS, the agency forwards copies of prior year tax returns to lenders. Returns from two or three years ago should be ready to go. However, if you need the most recent tax return and have only recently filed it, you may have to wait even longer. The issue is that the income tax return may not be completely processed yet by the IRS, so they can’t immediately forward electronic copies to your lender. One way around this may be to file your return in person at your local IRS office. They should be able to give you a stamped copy confirming that it is legitimate. Please note, however, that some lenders still require the form to come directly from the IRS, so this workaround isn’t always effective.
What to Expect
Most lenders handle the entire process of submitting Form 4506-T to the IRS. Therefore, it’s unlikely that you will need to do so yourself. If something goes wrong, your lender will notify you of the issue. They can’t deal with the IRS on your behalf, so you will have to take steps to address the situation. Do so as expediently as possible to ensure that your lender can receive the forms they need in a timely manner.
Unlike in years past, when Form 4506-T was usually only required for self-employed people and others with unusual income patterns, it is now required by nearly all lenders. It’s used to reduce the risk of loan fraud, so it’s a necessary evil. As long as your past returns have been filed and processed, you can expect your lender to receive your returns within three to five business days in most cases.