Lenders have upped their documentation requirements. The 4506-T form is required of prospective homeowners. Lenders require extensive tax documentation to certify the applicant’s income reported. The form may be requested at multiple stages during the application process.
How does it work?
The form is requested and submitted to the IRS. The 4506-T is requested by the lender and sent directly to the IRS, which issues a completed transcript. The information cannot be requested without the taxpayer’s consent. The document could cover multiple years.
When do you need one?
All homeowners applying for a loan may be required to submit a 4506-T form. The form may be requested upfront during when the application is initially submitted. The electronic transcript could be requested again at the closing time.
Why are the forms used?
When the housing boom issue occurred, lenders became especially prudent in collecting information from applicants. The form submission process is designed to spot inflated income claims and protect against losses stemming from fraud attempts made by applicants. The goal is to compare filings with data formally submitted to the IRS for irregular reporting patterns. If the income reported matches the filings, the company may continue to dig deeper before making a determination on the application.
How does the form benefit applicants?
The form benefits those who are self-employed. Those who may be involved in freelancing or have independent ventures may benefit from the transcript, which certifies earnings. Private tax return data is necessary for all applicants, and those who may be non-traditional earning profiles will benefit from the 4506-T form.
The form is essential for all applicants applying for a mortgage. It is used to certify earnings and also acts as a basis of comparison against other forms submitted to the IRS. The forms are essential for protecting lenders from losses that may arise from fraudulent income claims made