Answer: Most probably you have been asked to sign IRS Form 4506. This form authorizes the IRS to provide tax returns for selected year to a party named by you. The form is good for 60 days after being signed AND dated. (If the form is only signed then someone else can fill in the date later.)

This form represents a contest of sorts between lenders and borrowers. Most lenders want the right to obtain tax returns directly from the IRS to see if they compare with the income tax forms you submitted with your mortgage application. In effect, the lender wants to be able to audit the mortgage package.

Many borrowers, however, limit line 8a to the current calendar year. They also, on line 11, list only one or two past years. Since there is space for four years, some borrowers mark through the remaining spaces. As well, of course, it is important to date such forms since they are only valid “60 calendar days after the date you signed and dated the request.”

Oh, and if you do not allow the lender the opportunity to check your tax returns then the lender can decline the loan application.

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Syndicated originally by Content That Works and posted with permission.

What If I Don’t Sign The Mortgage Lender’s Form? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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First, they want to assure that the income you claim in your loan application is also the income you report to the IRS.

Second, if you are self-employed lenders may be able to “add back” items which are deductible for tax purposes but can be a mortgage application credit. For example: you are self-employed, work at home, and deduct part of your residence for business purposes. That can be a proper tax deduction, but lenders will add the amount deducted to your loan application income total.

Third, if a loan goes sour and must be foreclosed, lenders want a record in hand showing how the loan was underwritten.

Fourth, if a loan is sold, it may be among hundreds or thousands purchased at one time. The new owner will audit loans at random to assure they meet agreed standards. Part of the audit process can include a review of the underwriting file used to support the loan approval, including the tax records.

Under the Wall Street Reform Act lenders are required to verify income to qualify for the safe harbor provisions of the law. This means they will invariably ask for tax returns, W-2s and other evidence of income.

Why Do Lenders Want Tax Returns? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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