In the ever changing world of mortgages, you really need to stay on top of what is going on. So many think it's simple when pre-qualifying a borrower. But if you don't ask the right questions upfront and get very detailed, even the cleanest of deals could crash and burn.
So what is a 4506-t and what is its importance in the mortgage process? Basically it's a form used by lenders that allows them to request a transcript copy of your tax returns from the IRS. In the past, this form most times was used for those that were self-employed or to keep fraud in check. If a lender suspected something funny regarding your income, they could send this form to the IRS.
Your income is being examined very closely now by most lenders. No matter if you are self-employed or the lender/investor thinks there might be fraud involved, 4506-t's are being pulled on all borrowers. Now, I have heard some lenders brag that they aren't doing this, but is that true? I don't know, but I can tell you this, all the lenders that I know are doing this.
So I am a loan officer who pre-qualifies a borrower, asking them their current income situation. The primary borrower has a full time job at their current job of 8 years and makes a salary of $85,000 a year. Hey, it sounds cut and dry, right? Wrong !!! The borrower also has a side job in which she has been collecting and selling antiques for 3+ years. She even files taxes on this legally. Okay, so what's wrong? Well, she shows a loss on her tax returns. On a salary borrower, in most cases, we just have to collect W-2 forms for 2 years on FHA loans. Some lenders require the borrowers full tax returns no matter what. But what happens if your lender doesn't require this? Hence the reason now for the 4506t. When we get the transcript back from the IRS, it will list what she grossed on her primary job and show any other types of incomes, no matter if she showed a profit or a loss. In this case, the borrower showed a major loss, which had to be counted towards her income. And just because of this, it killed the deal because her qualifying ratios went through the roof.
Summary : No matter what the loan officer asks you, especially when it comes to your income, give them every bit of information for the last 2 years. If the loan officer tells you that they don't need your other sources of income, especially if it's showing a loss, just pick up and leave. Find a new lender. The 4506-t is extremely important and could be the difference of you moving into your house or not. And this doesn't matter if you are applying for a FHA loan, a USDA loan, a VA loan, or a conventional loan. It all comes down to the lender or the investor buying the loan.
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For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
_____________________________________________________________________________________________________________________________
FOLLOW ME ON FACEBOOK
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- FHA Home Loans - Mortgages -
Experience & Knowledge at its BEST !!!
Follow me on:
______________________________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Is it true that the form 4506T is being used by the IRS to collect back taxes?
This is absolutely true. Great post Jeff. We have to order tax transcripts on every loan, regardless of loan type.
HARRY.... . I am not sure and have not heard of that at all. I just know why lenders use it.
BRANDON... . Thanks for stopping by and for that polite compliment.
Nice post Jeff. We're now seeing u/w requests for W-2 verifications with the IRS!
Okay, Jeff, so what happens when the borrower lives on withdrawals from their investments combined with retirement income? Does the lender count the withdrawals from investments as income? I'm goikng to be working with someone like this soon.
I almost had a deal go flat because the buyer (I was the listing agent) had filed his taxes at the last minute and they hadn't been processed by the IRS. The underwriter wanted to see that tax return. The L.O. somehow worked it out, but, apparently, if they guy had filed and extension, or filed early, this wouldn't have happened. I am not sure why not seeing the tax return would have been better.
DREW.. . I am not sure if I follow that one or have heard of it... unless my brain is not thinking clearly, because I am still tired. I am going to look into that one... thanks and thanks for the compliment.
MARGARET.... . well, withdrawals from investments can be considered retirement income. All you have to show is the statements from those accounts and usually a letter from the company or the investment company that those withdrawals will continue for 3 years. So, yes, it can be counted as income. I would have him work on that information right now, so that all the documents are in order.. at least for that particular situation.
JANE... . what was the reason for the underwriter wanting to see the tax returns? Was this person self-employed? Had investments? As stated, just a transcript copy of the tax returns from the IRS is good enough if they are salaried/hourly employees. Maybe I am missing something, because at the end, you talk about tax returns again. thanks
Thanks, Jeff - I learn something new every day! By the way, I did hit "suggest" for this post the minute I saw it... does that help make up for the fact I didn't hit "like"?
Jeff, this is great information for people like me! Some years, I have flute playing income, and after deducting all of my expenses (instruments, repairs, insuracne, depreciation) it's a bit of a loss. If I didn't earn the income, the expenses would be the same, except maybe for depreciation, but I would show a higher income.
MARGARET... . my pleasure and thanks... I was just teasing. ;o)
PAT... . I think this is even good information for loan officers to remember... to pry anything and everything from the potenial buyer. I am gald that I helped some with this information. thanks
Jeff - this is important information for ALL of us! thanks for another great post!
Jeff, You know you make it so easy to reblog your posts because they are always spot on! My guess is you REALLY do know your stuff!!! LOL! Thank you for the reblog opportunity!
Hi Jeff, thanks for the excellent post, very useful information!
BARBARA JO... . my pleasure and thanks for the polite compliment.
DEBORAH... . I try... and thanks for the kind words and for reblogging this. Especially coming from someone in the mortgage business.
DAN... . my pleasure... Thanks for stopping by and for the polite comment... I am glad it helps some.
Jeff
The new regulations are there to protect us from ourselves because we are not smart and might hurt ourselves.