Mortgage companies want to prevent fraudulent loan applications from being accepted. One way they do this is by verifying an applicant’s tax return. Lenders can go right to the IRS and request transcripts. This means there will not be any opportunity for the transcripts to be altered. Transcripts are only one of the documents lenders need to approve a loan. They also need documentation on all an applicant’s assets and debts. If a person qualifies for a mortgage, the amount of the loan will be based on their income & assets.
During the process of underwriting a mortgage, a lender will view an applicant’s W-2s and pay stubs to confirm their income. A tax return provides a lender with an additional level of protection from any possible misrepresentations of income or fraud. When an applicant’s pay stubs match their tax return, a lender will continue to process their application. Should any irregularities be detected, a lender will want an explanation from the applicant.
This is similar to a person’s tax return. The tax transcript provides most of the line items from a person’s tax return, but a transcript is not a direct printout of a person’s return. It does contain important information desired by a mortgage lender. They can use it to begin the application process. It begins with an applicant submitting IRS form 4506-T. This is a Request for a Transcript of Tax Return from the IRS. When the form is completed and sent, the IRS can send the tax transcript directly to the lender.
This form will require the applicant to provide their personal tax information. These are such things as their Taxpayer ID Number, the exact tax forms the applicant filed with the IRS. The online and paper version of form 4506-T permits the applicant to put on a third-party address for where it is to be mailed. When a lender’s address is put here, it will be sent to the lender. The IRS will only release a person’s tax-document information to third parties if they have the tax payer’s consent. This means it is important to sign form 4506-T.
Applicants can order a tax transcript from the IRS online. They are available for the most current tax year as well as the three previous tax years. It could take up to ten days for the IRS to process the request.