Buying a home comes with some head-scratching processes for home buyers. Although once explained, they usually make sense. One of these includes lenders asking for borrowers to sign a “4506T Request for Copy of the Tax Return” form as part of the income verification process.
As stated in another OVM Financial article, mortgage fraud is still an issue. Fannie Mae studies show that forgery and employment fraud are two of the most popular types of mortgage fraud. Since a tax return could be completed with totally bogus numbers to qualify for a mortgage, lenders must verify the legitimacy. That is why lenders often request a copy of a borrower tax transcript (especially in the case of a self-employed borrower).
What is a Tax Transcript?
A tax transcript is a document provided by the IRS that summarizes your tax return. When you apply for a mortgage, we will request permission to obtain this document, and use it to verify the information reported on your return. The transcript must be reviewed by your loan officer before we can issue loan approval.
Why Is A Tax Transcript Necessary For Income Verification?
During the mortgage process, lenders collect, review, and verify income documentation. Some borrowers feel as they are being picked on, but lenders are just doing what they are required to do. In addition to following sound business practices, mortgage lending is also a highly regulated business. So, Mortgage Loan Originators are held responsible for verifying a borrower’s ability to repay the loan.
In the case of a borrower supplied tax return, lenders must verify the validity of the documentation. Just think of this scenario. A self-employed borrower knows their actual IRS reported income is too low for mortgage approval. So, the borrower grabs a 1040 and creates fictitious numbers that make everything look rosy. Then, the mortgage lender provides a nice looking mortgage pre-approval letter for home shopping. That’s where the required 4506T form comes into the picture.
4506T Request for Tax Transcript
Usually, very early in the home loan process, a borrower providing tax returns is presented with the 4506T form. The form allows the lender to request a copy of the borrower’s tax return summary. Typically, the request covers the most recent 1 – 2 years.
The borrower should review the Request for Copy of Tax Return for accuracy. This includes name, social security number, and a matching address from the most recent filed federal return. Once signed, the lender orders the tax transcript through a service that contacts the IRS. Depending on the number of requests or even government shutdowns, the turnaround time varies. Usually, expect about five business days.
I Need a Tax Transcript Quick
Problems with the tax transcripts request process include:
- IRS turnaround
- Request denied by IRS
- IRS tax transcripts requested late in the process
- Fraud committed against a taxpayer
- Required fast closing
- Government shutdown
Because of the above, sometimes the borrower/taxpayer needs to get involved with the IRS. Typically, the taxpayer can retrieve the tax transcript much quicker than a third party. When in a pinch, there are quick solutions to obtain the tax return transcripts.
3 Free and Simple Ways to Get a Tax Return Transcript
Many tax transcript requests get rejected since the IRS is very strict with this form for security reasons. Sometimes multiple times! Therefore, things can get crunched as the closing date or rate lock period draws near. That’s where the borrower can get involved using one of these quicker processes.
- Visit local IRS office
Be Prepared to Speak to the IRS
Before reaching out to the IRS, know your information. The IRS will ask several detailed questions to identify the taxpayer, and they may ask for information from the actual tax returns. Plan to have copies of the tax returns they are verifying. Make sure you have the correct years and return type. Sometimes lenders are verifying a personal return, and other times it is a business return. In some cases, it may be both.
Whichever option, having these documents on hand, will improve the chances of success. Once the IRS transcripts are received, provide them to your lender.
Online Tax Transcript Request
To request transcripts online, go to the IRS website to download a copy of your tax return transcripts quickly. Assuming all information provided to the IRS website matches, a borrower will be able to print or email the tax return validation.
Tax Transcript Request Over the Phone
If you are having an issue online or you feel more comfortable making a phone call, call 800-908-9946. Request up to 10 transcripts at one time. Just follow the voice prompts:
- Choose your preferred language
- Enter the taxpayer social security number
- Enter the number portion of the taxpayer address as directed
- Choose from the options stated – Make sure you know which years are needed by your lender up-front
The IRS phone recording states to expect about a 5 to 10-day turnaround.
Get Your Tax Transcript at the Local IRS Office
What if one or more of the following happens? Online doesn’t work; you can’t wait for mailed transcripts, the lender is getting errors, and closing is fast approaching. The last resort (and usually a speedy way) is to visit your local IRS office. We recommend making an appointment by calling the closest IRS office. Otherwise, the wait maybe longer, depending on the volume. Especially during tax season!
Again, remember to bring your tax returns in question with you. The IRS agent usually asks questions, and the taxpayer may not know the answer without viewing the return.
Self Employed Mortgage Loan Tips
If you are a self-employed borrower, this article should be a huge help because there are so many delays that may happen in this income verification process. Plus, a lender cannot rush the IRS.
We also provide other beneficial articles for business owners looking to buy or refinance a home. Even better, our loan teams provide the expertise and understanding that business owners need. Contact an OVM Financial loan officer today!