Not-So-Big Secret: Lenders Need 2 Years Tax Returns

During the housing boom, lenders seldom needed borrowers to produce copies of federal tax returns. But today, lenders usually ask borrowers to share their entire tax returns, for atleast 2 years.

Additionally, most borrowers are going to be needed to sign a type 4506-T, that permits the investor to retrieve a tax transcript from the IRS. The 4506-T tax transcript is then used to check the borrower’s W-2s to his or her reportable financial gain. If the numbers match, all is well. If not, the investor can dig deeper.

Why the sudden interest in borrowers’ tax returns?

The short answer is lenders trying to find financial irregularities and proof of loan fraud.

The solution is not easy: borrowers are going to have to build up their nonexempt financial gain for 2 years before they will qualify for a loan. Many of the old tricks that creative loan officers used to use have been stripped away.

In extreme cases, borrowers have been instructed to forgo deductions to that they believe they’re entitled to and pay a higher tax burden in order that they will show additional financial gain on their income tax return to qualify for a loan.

Pro Tip: Be careful with Amended Tax Returns.  New rules prohibit you from qualifying for a mortgage if your income tax return has been amended.