Banks have become more cautious than ever since the mortgage crisis, so they are no longer able to simply ask if a person has the ability to repay a loan. There are many people able to provide enough information without resorting to the bank asking for tax returns, and their loans will tend to be processed quickly. For those who do not fit into this particular category, the bank is allowed to request tax returns under certain circumstances.
Most people work for an employer, and their pay stub from a weekly check will be enough evidence to show sufficient income. This is what the bank needs to decide whether or not a loan can be granted, and those who can provide it have an easy path to getting their loan examined for possible approval by the bank’s lending division.
If a pay stub is not available, a federal form W-2 is generally acceptable for the purpose of a bank loan application. It gives the amount of income for the year, and the bank is capable of using that information to decide whether or not a person will be able to afford the loan payments.
Those who do not work for a company often have a more difficult path to follow, and the bank may decide that they need to see their tax returns. They will not ask the person to provide them as they are not certified. Instead, the bank will send a 4506-transcripts request to the IRS so that they can get copies of the person’s returns for the past few years. Their goal is to help a client seeking a loan to prove they do have the income to repay any loan that is granted.
It is seldom that any bank wishes to lengthen the loan application process, but it can be necessary. For those who are dependent upon income not covered by a regular employer, it could be a step they must get used to if they are going to borrow money.