Most every borrower will now be required to complete and sign the Tax Transcript form(4506) when they apply for a mortgage loan.  While this requirement is not a new one, borrowers should be made aware that this form will now be sent to the IRS during your application process.

The Tax Transcript form, which checks the past two years of federal tax returns, verifies to the lender that the income given to them is accurate. The IRS then confirms the information or alerts the lender to a discrepancy.  In the case of a discrepancy, the lender is given copies of the Taxes on file with the IRS.

For the borrower who is honest and submits accurate tax returns to the lender, this process should not be an issue or cause for concern.  It does have implications however, for those who submit false tax returns.

In certain cases there can be findings on the Tax Transcripts which can affect the mortgage loan even when tax returns are not needed upfront to underwrite the loan.  An example of this is non-reimbursed business expenses.  Many people claim these expenses which reduce their taxable income. What they do not realize is that these same expenses should be claimed when they apply for a loan.  This can impact the qualifying ratios and even result in a denial.

It is in your best interest to make sure that when meeting with your Loan officer/Mortgage Consultant you review your returns and ensure that there are no changes in income which will come out on the tax returns.  Also, if you have changed names or addresses in the last 2 years you will want to make sure this information is given upfront to your LO so the correct tax transcripts are ordered.  Typically they come back within 48 hours unless it is close to tax time where there may be a delay.