The mortgage market has fraudulent activities. So, lenders want to protect themselves against unscrupulous borrowers. The IRS Form 4506 T gives loan officers permission to get your IRS transcripts. The transcripts show various years of your federal income tax filing.
You do not have a choice when presented with Form 4506 T. All borrowers have to sign it to give the lender permission to look over past tax filings. The information you put in your application has to agree with the Form 4506 T. If not, your loan may take longer to process.
The form is not a new procedure. The IRS has been disclosing information about lenders over the years. But, they only did so at the close of escrow for self-employed individuals with gaps in income. The new rules affect all borrowers per Fannie Mae.
Fannie Mae asks lenders to get two sets of electronic transcripts from all borrowers. A Form 4506 T has to be present during the application process and also at the time of closing. Borrowers also have to show proof of employment. The forms the lenders get when asking for Form 4506 T includes 1040, 1040A or 1040EZ. Other types include W2, 1098s, and 1099s.
Borrowers have it much harder to get a loan because of the new rules. Apart from the tax returns, lenders may ask for specific tax tables. The schedules include B through F, Schedule K-1, Form 2106, or business forms. That is why it is important to keep track of Form 4506 T.
Self-employed individuals have to jump through more hurdles. The number of years to show proof is up to four. So, they have to show proof of personal income tax returns and business tax returns. They have to file separate transcripts for each return. The lender would send two Form 4506 Transcripts. One transcript is for the personal income tax, and the other is the business tax return.